Assume the following: There are two investors (A and B), two states (1 and 2), and...
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Assume the following: There are two investors (A and B), two states (1 and 2), and the two Arrow-Debreu securities are traded. Initial endowments are as follows: - - A has 1 unit of A-D security 1, and 0.5 units of A-D security 2. - B has 1 unit of A-D security 1, and 1.5 units of A-D security 2. Preferences are as follows: - - - For A, we have U (x^, x) = x^x^, where x is A's amount of the A-D security in state i. - For B, we have U (xx) = x+2x, where x is B's amount of the A-D security in state i. Answer the following questions: a. Represent the investors' initial allocations and preferences in an Edgeworth box. b. Draw the Pareto Optimal allocations and the contract curve. c. Find the equilibrium graphically. d. Find the equilibrium analytically. Assume the following: There are two investors (A and B), two states (1 and 2), and the two Arrow-Debreu securities are traded. Initial endowments are as follows: - - A has 1 unit of A-D security 1, and 0.5 units of A-D security 2. - B has 1 unit of A-D security 1, and 1.5 units of A-D security 2. Preferences are as follows: - - - For A, we have U (x^, x) = x^x^, where x is A's amount of the A-D security in state i. - For B, we have U (xx) = x+2x, where x is B's amount of the A-D security in state i. Answer the following questions: a. Represent the investors' initial allocations and preferences in an Edgeworth box. b. Draw the Pareto Optimal allocations and the contract curve. c. Find the equilibrium graphically. d. Find the equilibrium analytically.
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