Consider an economy with two individuals, Ann and Bob and two goods x and y. Ann's...

 

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Consider an economy with two individuals, Ann and Bob and two goods x and y. Ann's initial endowment is (50, 20) and Bob's initial endowment is (20,50). Ann's utility function is u₁(x,y)=√xy and Bob's utility function is up = x xy. (1) (2.5 points ] Draw the Edgeworth box and show the initial endowment, the indifference curves for both individuals associated with their endowments. (2) [12.5 points ] Is the initial endowment Pareto efficient? Why?Determine the contract curve. Consider an economy with two individuals, Ann and Bob and two goods x and y. Ann's initial endowment is (50, 20) and Bob's initial endowment is (20,50). Ann's utility function is u₁(x,y)=√xy and Bob's utility function is up = x xy. (1) (2.5 points ] Draw the Edgeworth box and show the initial endowment, the indifference curves for both individuals associated with their endowments. (2) [12.5 points ] Is the initial endowment Pareto efficient? Why?Determine the contract curve.

Answer rating: 100% (QA)

1 Here is the Edgeworth box showing the initial endowments and indifference curves Insert Edgewort... View the full answer