Anne and Bill live in an island economy and consume only two goods. Let a for...

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Anne and Bill live in an island economy and consume only two goods. Let a for i = A, B. Their endowments are wA = (wt, ws') = (2, 5) and wB = (10, a). Both have identical Cobb-Douglas utility functions u;(æ) = xx, for i = A, B. Normalizing the price of good 2 to be p2 = 1, we just write p1 =p > 0. The individual (xi, x2) denote the consumption bundle (wP,w) %3D %3D %3D %3D demand functions for Anne and Bill are then: mi %3D 2p mi %3D 2 where m' refers to the value of i's endowment at the current market price p. (a) Draw the set of interior PE allocations in an Edgeworth box for this economy. (b) Calculate the Walrasian equilibrium price p and the Walrasian equilibrium allo- cation ((.). (af. z4)) Anne and Bill live in an island economy and consume only two goods. Let a for i = A, B. Their endowments are wA = (wt, ws') = (2, 5) and wB = (10, a). Both have identical Cobb-Douglas utility functions u;(æ) = xx, for i = A, B. Normalizing the price of good 2 to be p2 = 1, we just write p1 =p > 0. The individual (xi, x2) denote the consumption bundle (wP,w) %3D %3D %3D %3D demand functions for Anne and Bill are then: mi %3D 2p mi %3D 2 where m' refers to the value of i's endowment at the current market price p. (a) Draw the set of interior PE allocations in an Edgeworth box for this economy. (b) Calculate the Walrasian equilibrium price p and the Walrasian equilibrium allo- cation ((.). (af. z4))