Question: Q. Consider two rational behaving consumers, A and B, in a two-good exchange economy. Their utility functions are defined as follows: UA UB =
Q. Consider two rational behaving consumers, A and B, in a two-good exchange economy. Their utility functions are defined as follows: UA UB = = X1/2 1/3 1/3 1A 2A 1B X2B Their initial endowments are given by WA = (8,5) and wB = (4,3). a. Describe the initial condition that will lead to an exchange. After the exchange, how many units of Good 2 will Individual B end up receiving/offering in the final allocation? Elaborate in detail on the steps towards the solution and round up the final answer to two decimal places. b. Sketch an Edgeworth Box precisely showing the initial allocation and the final allocation on the vertical axis. You do not have to sketch the budget constraint and the indifference curves.
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