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Consider the following endowment economy. Dev has a utility function of uD(c1, c2) = 2 ln (c1) +ln (c2) and Arnold has a utility function of uA(c1, c2) = ln (c1) + 3 ln (c2). Dev is endowed with eD = (2, 3) and Arnold's endowment is eA = (3, 2). Please answer the following questions and label your graphs properly.
a. Define the competitive equilibrium for this economy.
b. Draw an Edgeworth box to illustrate this economy.
c. Using the Edgeworth box you drew in Part b., label the set of Pareto optimal allocations. (You do not need to characterize the set mathematically. Just indicate the set within the Edgeworth box.)
d. Using the Edgeworth box you drew in Part b., label the set of individual rational allocations. (You do not need to characterize the set mathematically. Just indicate the set within the Edgeworth box.)
e. Calculate the market clearing prices and the equilibrium allocation.
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