Using edge worth-box-draw a pareto-optimal allocation

Assignment Help Business Economics

Reference no: EM13852473

Pete and Paul live in an exchange economy (so we can use the Edge worth-box). The economy has endowment of 10 cheese slices and 10 crackers. Pete has distinguished taste, he likes to eat cheese with cracker, to the extent that he considers them perfect complements, his utility is U=min{ch, cr}, where ch=cheese consumption and cr=crackers consumption. Paul cares only about satisfying calorie requirements; he considers cheese and crackers perfect substitutes. His utility function is U=ch+cr.

a) Is Pete consuming 3 crackers and 5 cheeses slices a Pareto-optimal allocation? If not, how could you rearrange the consumption of Pete and Paul to arrive at better allocation?

b) Using Edge worth-box, draw a Pareto-optimal allocation.

c) Using the logic of your answer for part a, draw the contract curve.

Reference no: EM13852473

Questions Cloud

Solow model for consumption per person in steady state : What is the solution of the Solow model for consumption per person in the steady state, c ∗ = C ∗/L∗ ? How does each parameter in the solution affect c ∗ , and why?

Behaviour scenarios from global and ethical perspective : Discuss the case in three different cultural settings (USA, Asia, and the Middle East) considering three different minority groups (Blacks, Disabled Persons, and Women), and incorporate local cultural and traditional values, and compare likely behavi..

Write an expression for marginal rate of substitution : Jane lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her marginal utility for soft drinks (Good X) is equal to 3Yand her marginal utility of chips (Good Y) is equal to 3X. MUx = 3Y MUY = 3X Soft drinks are priced ..

Process for charging him-who has and what is burden of proof : The cops catch Bob breaking into a Pepsi vending machine and arrest him. What is the process for charging him and who has and what is the burden of proof?

Using edge worth-box-draw a pareto-optimal allocation : Pete and Paul live in an exchange economy (so we can use the Edge worth-box). The economy has endowment of 10 cheese slices and 10 crackers. Is Pete consuming 3 crackers and 5 cheeses slices a Pareto-optimal allocation? If not, how could you rearrang..

Two goods in the economy-video games and water : Assume that there are only two goods in the economy: video games and water. The total amount of these goods are given, there is no production. The world is inhabited by two people: Ann and Bob.

Explain how the state changes the defendant : In a criminal case, explain how the state changes the defendant, who has the burden of proof and what, is the burden of proof?

What is the implicit cost of energy consumption : Natasha has been told that if she reduces the thermostat setting on the heating system at her home by 1 degree, she will be able to reduce her present annual energy consumption of 5,000 kWh of energy by 20%. In doing so, she will be able to save as m..

One-time permanent increase in the stock of labor : Shocks to an economy, such as wars, famines, or the unification of two economies. often generate large one-time flows of workers across borders. What are the short-run and long-run effects on an economy of a one-time permanent increase in the stock o..

User Account

All Pages