Assume an economy in which there are only two persons, (ij). Each individual's utility function is...

  

Transcribed Image Text:

Assume an economy in which there are only two persons, (ij). Each individual's utility function is u;= min{x₁,2x₂}, uj = min{2x₁,x₂}. In addition, each individual has (xi,1, xxi,2)=(xj,1,xj,2) = (15,15) as endowed resources. Assuming that goods that exist in the economy must be owned by someone, answer the following questions. a) Illustrate the edge word box and mark the existing resource points. b) Illustrate the contract curve and explain how two individuals must trade for the endowment point to be Pareto efficient. Assume an economy in which there are only two persons, (ij). Each individual's utility function is u;= min{x₁,2x₂}, uj = min{2x₁,x₂}. In addition, each individual has (xi,1, xxi,2)=(xj,1,xj,2) = (15,15) as endowed resources. Assuming that goods that exist in the economy must be owned by someone, answer the following questions. a) Illustrate the edge word box and mark the existing resource points. b) Illustrate the contract curve and explain how two individuals must trade for the endowment point to be Pareto efficient.