Smith and Jones are stranded on a desert island. Each has in her possession some slices of
Question:
a. Draw the Edge worth Box diagram for all possible exchanges in this situation. What is the contract curve for this exchange economy?
b. Suppose Smith’s initial endowment is 40 slices of ham and 80 slices of cheese (Jones gets the remaining ham and cheese as her initial endowment). What mutually beneficial trades are possible in this economy and what utility levels will Smith and Jones enjoy from such trades?
c. Suppose that 20 slices of ham could be transferred without cost from Jones’ to Smith’s endowment. Now what mutually beneficial trades might occur and what utility levels Smith and Jones would experience?
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Related Book For
Intermediate Microeconomics and Its Application
ISBN: 978-0324599107
11th edition
Authors: walter nicholson, christopher snyder
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