Question: I am also unable to solve this question. 5. Consider an economy with two goods (apple and orange) and two agents, person 1 and person
I am also unable to solve this question.

5. Consider an economy with two goods (apple and orange) and two agents, person 1 and person 2. Person 1 is initially endowed with (1)1 = (E, i) of apples and oranges respectively . 1 1 and person 2's endowment 1s (1)2 = (5' 3). Person 1's utility function is given by u(x1,y1) = lnxl + lnyl where 361 is consumption of apple and ylis consumption of orange. Person 2's utility function is given by u(x2, y2) = glnxz + lnyz where x2 is consumption of apple and y2 is consumption of orange. a) Plot an Edgeworth box and mark the initial endowments. b) Derive the contract curve (give formula) and depict it in the Edgeworth box. c) Find the competitive equilibrium (let price of apple equal to l) and show it in the Edgeworth box. d) Verify that the allocation in the competitive equilibrium is economically efcient (Pareto efcient)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
