Suppose Humphrey starts out with four pounds of food and seven gallons of water, while Lauren starts
Question:
Suppose Humphrey starts out with four pounds of food and seven gallons of water, while Lauren starts out with eight pounds of food and five gallons of water. Draw an Edgeworth box that shows all the possible allocations of these goods, and plot the endowment points. Now suppose that both Lauren and Humphrey's preferences correspond to the utility function U(F,W) = min{F,W} (where F refers to pounds of food and W refers to gallons of water). This is a case of perfect complements. Add Humphrey and Lauren's indifference curves to the Edgeworth box. Then draw the contract curve. To which points on the contract curve is each consumer willing to trade? Suppose Humphrey starts out with six pounds of food instead of four pounds. How does the picture change? What does the contract curve look like?
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