You are the benevolent dictator of Sbarroland, an Edgeworth economy of two peopleAlessandra and Brunoand two goodspizzas
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- You are the benevolent dictator of Sbarroland, an Edgeworth economy of two peopleAlessandra and Brunoand two goodspizzas (x) and breadsticks (y). The economy has a total of 20 pizzas and a total of 16 breadsticks.
The initial endowment is as follows. Alessandra was born owning 4 pizzas, and she was born owning 13 breadsticks. Bruno was born owning the other 16 pizzas and 3 breadsticks. In Edgeworth-style notation, the initial endowment is therefore
(4,13,16,3).
Alessandra proposes that the two people trade according to a specific pair of prices, where pxis the dollar price of a pizza, and pyis the dollar price of a breadstick. Given the specific prices that Alessandra has proposed, Bruno calculates that he could afford to turn his initial endowment of 16 pizzas and 3 breadsticks into a final allocation of 13 pizzas and 12 breadsticks.
- Given that Bruno has done his calculations correctly, what specific numbers might Alessandra have proposed for pxand py? (Note: There are multiple possible correct answers.) Explain.
Related Book For
Principles of Macroeconomics
ISBN: 978-0134078809
12th edition
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
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