Draw an edgeworth box with well-behaved preferences

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Reference no: EM131356503

Open Word and answer the following questions. Save the document and print it when you are done.

1. Why do the Pareto criteria fail to provide a single point that is the best allocation?

2. What must be true about the exponents in the Cobb-Douglas utility functions for consumers A and B to generate a linear contract curve? Describe your procedure and explain your answer.

3. Use Word's Drawing Tools to draw an Edgeworth Box with well-behaved preferences and a point Z, where the MRS_A > MRS_B. Explain why point Z is not Pareto Optimal.

4. The contract curve (with cA = 0.5) can be transformed into a utility possibilities frontier, as shown in Figure 3.2.3.5. Where would point Z (from the previous question) be on this graph? Explain why.

Reference no: EM131356503

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