How economy makes sense for susan and cathy to trade

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Reference no: EM13238998

In an economic experiment of a pure exchange economy two people, Susan (S) and Cathy (C).are given an original endowment of two goods, bubble gum (G) and hats (H). Susan was given 2 packs of bubble gum and 30 hats, and Cathy was given 8 packs of bubble gum and 10 hats. Susan and Cathy derive utility from hats and bubble gum from the following utility functions: Susan: Us = 2H + 3G; Cathy: Uc = min{AG.H} Draw an Edgeworth box representing the "economy". Make sure to label the total endowment of the two goods and the original endowment allocated to Susan and Cathy (label it "A"). Also draw the two indifference curves associated with the original endowment and the contract curve for the economy. How do you know it makes sense for Susan and Cathy to trade? Give one example of a trade that is mutually beneficial to Susan and Cathy that results in a Pareto efficient allocation (example: Susan trades "X" hats to Cathy for "Y" packs of bubble gum), label this new allocation point "B" on your Edgeworth box.

Reference no: EM13238998

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