The contract curve for this exchange economy

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Reference no: EM131101279

Exchange: Anna’s utility function is UA(x 1 A, x2 A) = x 1 A + 2p x 2 A, while Bailey’s utility function is UB(x 1 B, x2 B) = x 1 B + 4p x 2 B, where the superscript indicates the good and the subscript names the person. Anna’s initial endowment of goods 1 and 2, respectively, is given by ω 1 A = 8 and ω 2 A = 12. Bailey’s initial endowment is ω 1 B = 8 and ω 2 B = 4.Draw the Edgeworth box. Label the initial endowments with the letter E.

a) Draw in some indifference curves for each person and show the contract curve for this exchange economy.

b) Find the competitive equilibrium prices and quantities. (You know what the prices have to be at the competitive equilibrium, because you know what the marginal rates of substitution have to be at every Pareto optimum point in this particular economy.)

C) Derive MRS

Reference no: EM131101279

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