Comedian Jay Leno once took his show to Michigan and gave away free tickets so that out- of-work individuals could attend. He later objected when he discovered that someone tried to sell his free ticket on eBay, and eBay subsequently banned the sale of the tickets. Discuss whether or not individuals would have been better off if they could sell their free tickets to the show. Hint: Assume that a typical person’s utility de-pends only on two commodities: tickets to the Jay Leno show and a composite of all other goods. Assume there are two individuals, Angelo and Bahn, each of whom has managed to obtain three free tickets. However, Angelo is “rich” and has twice the amount of all other goods as Bahn. For simplicity, you may assume that tickets are infinitely divisible.
a. Draw an Edgeworth Box showing the initial allocation, assuming conventionally shaped indifference curves for both individuals.
b. Using the Edgeworth Box, explain how the ban on selling tickets can lead to an inefficient outcome.
c. Using the Edgeworth Box, represent a situation in which the ban on selling tickets does not reduce efficiency for these two individuals.

  • CreatedMarch 25, 2015
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