Elucidate why situation is unlikely to be pareto efficient

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Reference no: EM1364448

Consider an economy with two persons, Henry and Catherine, who consume two commodities, bread and water. Suppose that, due to a drought, the authorities decide to allocate exactly half the available water to each person. In order to prevent one person from "exploiting" the other, neither person may trade away any water to the other in exchange for more bread.

Set up an Edgeworth Box to depict this situation and explain why the situation is unlikely to be Pareto efficient.

Reference no: EM1364448

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