a,b,c. Please write neatly! 1) Consider an Edgeworth box economy with two consumers with the following preferences
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a,b,c. Please write neatly!
1) Consider an Edgeworth box economy with two consumers with the following preferences and endowments. For consumer 1,u1(x11,x21) = (x11)a(x21)1−a, andω1=(1, 0). For consumer 2,u2(x12,x22) = (x12)b(x22)1−b, andω2= (0, 1).(
a) Solve each consumer’s utility maximization problem to find their demand functions.
(b) Use the market clearing condition to find the price ratio in Walrasian Equilibrium.
(c) Suppose a = b=0.75. Draw the Edgeworth Box diagram for this economy showing the Walrasian Equilibrium allocation and each consumer’s indifference curve passing through this allocation. Is the allocation Pareto Efficient? Is it Envy-Free?
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