Illustrate the concept of pareto improvement

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Questions

1. Using an Edgeworth Box diagram, illustrate the concept of a Pareto improvement in an exchange economy consisting of two consumers with well-behaved preferences, two goods, and some initial endowment of the two goods. Label carefully all elements of the diagram. Define precisely the condition required for a Pareto improvement and point out in the diagram where this condition is satisfied relative to the initial endowment point.

2. using the information above redistribute the initial endowment to another point in the Edgeworth Box and explain where the condition for a Pareto improvement is satisfied for the new endowment. Then allow for the initial endowment being on the contract curve of exchange. Is it possible for a Pareto improvement to be made from this point? If not, why not?

Reference no: EM133372616

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