Edgeworth box-find the contract curve

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Reference no: EM131108053

There are only two consumers, Bill and Ted, and two goods, apple and bananas. Bill and Ted like apples and oranges. Bill is always willing to substitute 1 apple for 3 bananas. So Bill's utility function is U(b) = 3A + B. Ted is always willing to substitue 1 apple for 2 bananas. So Ted's utility function is U(T) = 2A + B. Assume that therre are 12 apples and 24 bananas to split between Bil and Ted.

1) Construct an appropriately sized Edgeworth box for them

2) Draw indifference curves for both Bill and Ted in you edgeworth box in part a. Draw Bill's indifference curve with thick lines, and Ted's with thin lines (or you could use lines with different colors to show Bill's and Ted's indifference curves).

3) Assume that initially Bill has 3 apples and 10 bananas. How many apples and bananas does Ted have?

4) Is the initial allocation in part (c) pareto efficient? Explain.

5) Find the contract curve

Reference no: EM131108053

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