Consider an Economy with Two Consumers, Annie and Bob, and Two

question 65

Essay

Consider an economy with two consumers, Annie and Bob, and two goods, 1 and 2. Annie's initial endowment is (4, 1), respectively, while Bob's endowment is (0, 7). Annie's utility function is x₁*x₂, while Bob's utility is min(x₁, x₂).
a)Draw an Edgeworth box, measuring Annie's consumption from the lower left corner. Indicate the endowment point and draw an indifference curve for each consumer.
b)Sketch the locus of the Pareto- optimal allocations.
c)If p₂ = p and p₁ = 1, compute Bob's income at these prices and his demand for good 2 at the same prices.

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Definitions:

Tariff

A governmental policy tool used to control the flow of international trade through taxes on imports and exports.

Saddles Imported

The act of bringing in saddles from foreign countries for sale within the domestic market.

Quantity

The amount or number of a material or immaterial good or service.

Tariff

A tax imposed by a government on imported goods, often used to protect domestic industries and adjust trade balances.