Mutt's Utility Function Is U(m, J)= Max{3m, J} and Jeff's

question 4

Multiple Choice

Mutt's utility function is U(m, j) = max{3m, j} and Jeff's utility function is U(m, j) =2m + j.Mutt is initially endowed with 3 units of milk and 2 units of juice and Jeff is initially endowed with 5 units of milk and 6 units of juice.If we draw an Edgeworth box with milk on the horizontal axis and juice on the vertical axis and if we measure goods for Mutt by the distance from the lower left corner of the box, then the set of Pareto optimal allocations includes the

• A)left edge of the Edgeworth box but no other edges.
• B)bottom edge of the Edgeworth box but no other edges.
• C)left edge and bottom edge of the Edgeworth box.
• D)right edge of the Edgeworth box but no other edges.
• E)right edge and top edge of the Edgeworth box.

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Definitions:

Interest Rate Effect

The impact that changing interest rates have on consumer spending and business investments in an economy, generally influencing economic activity.

Price Level

The mean value of prices for the full range of goods and services in the economy.

Consumption and Investment

Elements of economic activity where consumption represents spending by households on goods and services, while investment refers to spending on capital goods that will be used for future production.

Macroeconomic Equilibrium

A state in which aggregate supply equals aggregate demand in an economy, leading to a stable price level and full employment.