Two consumers, Ron and David, together own 1,000 baseball cards and 5,000 Pokémon cards. Let xR denote the quantity of baseball cards owned by Ron and yR denote the quantity of Pokémon cards owned by Ron. Similarly, let xD denote the quantity of baseball cards owned by David and yD denote the quantity of Pokémon cards owned by David. Suppose, further, that for Ron, MRSRx,y = yR/xR, while for David, MRSDx,y = yD/2xD. Finally, suppose xR = 800, yR = 800, xD = 200, and yD = 4,200.
a) Draw an Edgeworth box that shows the set of feasible allocations in this simple economy.
b) Show that the current allocation of cards is not economically efficient.
c) Identify a trade of cards between David and Ron that makes both better off.