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Draw the range of possible distributions

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Reference no: EM133078114

Consider two people that each have the following Utility Function in the consumption of Good X and Good Y: U = 2 X'ZY'S The economy has 25 units of Good X and 60 units of Good Y.

a) Draw the contract curve for this economy Consider an initial endowment of Good X and Good Y in which Person 1 has 5 units of Good X and 40 units of Good Y.

b) Please draw the range of possible distributions (on and off the contract curve) that would leave each person equally well off (in terms of utility).

c) What points on the contract curve would leave each person at least equally well off. Be speci?c.

d) If a market determines the relative price of Good X and Good Y, to what point will Person 1 and Person 2 trade?

Reference no: EM133078114

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