Discuss consumers in a 2-good pure exchange economy

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Reference no: EM133412304

Assignment:

Consider two consumers in a 2-good pure exchange economy. Agent 1 is endowed with 1 unit of good 1 and 3 units of good 2, while agent 2 is endowed with 2 units of each good. Their utility functions are given below:

u1 = max{x1, x2}

u2 = max{2x1, x2}

1. Represent this situation in an Edgeworth box with the endowment point and at least two indifference curves of each agent clearly labeled.

2. Label the set of Pareto-improving allocations in the Edgeworth box.

3. What is the highest level of utility agent 1 can achieve while agent 2's utility is at least as high as it would be if agent 2 consumed her endowment?

Reference no: EM133412304

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