Suppose, instead, that the preferences of the two consumers are described by the utility functions U(x)...

 

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Suppose, instead, that the preferences of the two consumers are described by the utility functions U₁(x) = x + x2 and Ug(x) = min (x,x), where x denotes consumer j's consumption of good i. i. Suggest a trade of the form: A gives B units of good in exchange for ________ units of - good that would make both consumers better off. Note: no prices are involved in this answer. ii. Compute the utilities of the consumers after the trade you suggest. iii. Draw an Edgeworth Box to represent this economy. iv. Locate the allocation corresponding to the initial endowments listed above. v. Show, for each consumer, the indifference curve that is passing through the initial endowment point. Label all intersections and intercepts. vi. Show the contract curve (the set of all the Pareto Optimal allocations) in this economy. Suppose, instead, that the preferences of the two consumers are described by the utility functions U₁(x) = x + x2 and Ug(x) = min (x,x), where x denotes consumer j's consumption of good i. i. Suggest a trade of the form: A gives B units of good in exchange for ________ units of - good that would make both consumers better off. Note: no prices are involved in this answer. ii. Compute the utilities of the consumers after the trade you suggest. iii. Draw an Edgeworth Box to represent this economy. iv. Locate the allocation corresponding to the initial endowments listed above. v. Show, for each consumer, the indifference curve that is passing through the initial endowment point. Label all intersections and intercepts. vi. Show the contract curve (the set of all the Pareto Optimal allocations) in this economy.

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i To suggest a trade that would make both consumers better off we need to find a point where the indifference curves of the two consumers intersect Th... View the full answer