Contract curve is each consumer willing to trade

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Reference no: EM13700193

Suppose Humphrey starts out with four pounds of food and seven gallons of water, while Lauren starts out with eight pounds of food and five gallons of water. Draw an Edge worth box that shows all possible allocations of these goods, and plot the endowment points. Now suppose that both Lauren and Humphrey’s preferences correspond to the utility function U(F, W) = min{F, W} (where F refers to pounds of food and W refers to gallons of water). This is a case of perfect complements. Add Humphrey and Lauren’s indifference curves to the Edge worth box. Then draw the contract curve. To which points on the contract curve is each consumer willing to trade?

Reference no: EM13700193

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