Consider an exchange economy with two consumers Adam and Beth (denoted by Aand B) and two...
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Consider an exchange economy with two consumers Adam and Beth (denoted by Aand B) and two goods fish and meat (\(f)\and m). The two consumers have an initial endowment: wA (4; 2) WB (5; 4) and their preferences are described by the following utility's functions: UA (f,m) = Min{f^,^} UB (f,m)=fB + m² 1. Draw the preferences of the consumers in an Edgeworth box and display the initial endowment. 2. Construct the set of Pareto efficient allocations (PEA) and the core of the contract curve (for simplicity, you can assume that pm = Pf = 1). 3. Find the Walrasian equilibrium allocation (WEA). 4. Explain carefully the key assumptions and the limits of the First Theorem of Welfare Economics. Consider an exchange economy with two consumers Adam and Beth (denoted by Aand B) and two goods fish and meat (\(f)\and m). The two consumers have an initial endowment: wA (4; 2) WB (5; 4) and their preferences are described by the following utility's functions: UA (f,m) = Min{f^,^} UB (f,m)=fB + m² 1. Draw the preferences of the consumers in an Edgeworth box and display the initial endowment. 2. Construct the set of Pareto efficient allocations (PEA) and the core of the contract curve (for simplicity, you can assume that pm = Pf = 1). 3. Find the Walrasian equilibrium allocation (WEA). 4. Explain carefully the key assumptions and the limits of the First Theorem of Welfare Economics.
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