Question: Consider a standard exchange setting with two consumers A and B and two goods xand y,as introduced in slide 7of Lecture 4. Assume that x=1
Consider a standard exchange setting with two consumers A and B and two goods xand y,as introduced in slide 7of Lecture 4. Assume that x=1 and ?bar(y)=1, and thatuA(xA,yA)=(xA)12(yA)12, and uB(xB,yB)=ln(xB+1)+yB. Assume that in theEdgeworth box, good xis measured horizontally and good y vertically (asin the lecture).Then the Pareto efficient (PE) curve associated with this exchange setting haspositive and increasing slope.positive and decreasing slope.slope equal to zero, i.e.,itis a horizontal line.positive and constant slope.If(xA,yA,xB,yB)isan allocation that lies on the PE curve so that xA=12, then yBmust be equal toIf(uA,uB)is a point on the utility possibilities frontier (UPF)so that uA=0, the uBmust be equal toIf the initial endowment is given by(xzA,yzA,xzB,yzB)=(1,0,0,1), then consumer B'sfallback utility level is equal to
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