Efficient competitive equilibrium

Reference no: EM1369831

There is a pure exchange economy with two identical consumers, A and B. Consumer A has 8 units of good 1 and 4 units of good 2. Consumer B has 4 units of good 1 and 8 units of good 2.

a) Show in an Edgeworth box diagram what a competitive ( price taking) equilibrium would look like in this economy.
b) Is this competitive equilibrium efficient? Explain.
c) Suppose that for some reason we wish the outcome in which A gets 8 of each good, and B gets 4 of each good to arise in this economy. Under what circumstances could we achieve this outcome in a competitive equilibrium? Explain.

Reference no: EM1369831

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