Homework answers / question archive / Consumer A and B have the following utility functions

Consumer A and B have the following utility functions

Economics

Share With

Consumer A and B have the following utility functions. UA(x1,xA) = x1. x4 and UA(XP,x) = x x At the initial endowment point both consumers have endowments of both goods. a. Draw the preferences (indifference curves) of the consumers, 11 and 12, in the Edgeworth box below. In other words, a single indifference curve for consumer 1 marked by I' and a single indifference curve for consumer 2 marked by 12.
b. Please provide your answer to the following question by using the Edgeworth Box below. i. Starting from the endowment point w in the Edgeworth Box below, show the directions of more preferred bundles for both consumers by using an arrow pointing in the right direction. ii. By determining the trades that improve both consumers' utilities, find the equilibrium of the economy and mark it by E in the Box. iii. Show the equilibrium budget constraint on the Edgework Box.