Question: A has utility fn = . B has utility fn = 2 + . A starts off with 100 units of x and no units

A has utility fn = . B has utility fn = 2 + . A starts off with 100 units of x and no units of y. B starts off with 100 units of y and no x.

  1. Sketch the Edgeworth box. Put A's origin on the left lower corner and x on the horizontal axis. Identify the endowment point with an "E". Show the "core"
  2. Assuming a "competitive" price, what allocation would you expect after trade?
  3. Suppose that the government caps the amount traded to at most 10 units of x. Ignore the assumption of a "competitive" price. What would you expect to happen?

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