Both students have normally shaped indifference curves

Reference no: EM13690205

1. At many universities around the country, graduation tickets are a scarce resource. Most students are allocated a certain number of tickets and nearly all students wish they had more tickets. Typically, students can buy and sell graduation tickets on the internet. However in 2007, the Dean of Princeton University shut down the market arguing that selling tickets undermines the spirit of community, and undermines the sense of class unity that seniors have worked hard to create.

To analyze the effects of this policy, assume that there are two students, Angelo and Bahn, each of whom starts out with three tickets. However Angelo is rich and has twice the amount of all other goods as Bahn. You may assume that graduation tickets are infinitely divisible and that all other goods are also infinitely divisible.

a. Draw an Edge worth Box showing the initial allocation of tickets and all other goods (treat all other goods as a single composite commodity). Assume that both students have normally shaped indifference curves.

b. Use the Edge worth Box to explain how banning ticket sales can lead to an inefficient outcome.

c. Use the Edge worth Box to show a situation in which banning ticket sales DOES NOT reduce efficiency for these two students.

Reference no: EM13690205

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