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Homework answers / question archive / In an exchange economy, there are two people, A and B, and two goods, ????1 and ????2
In an exchange economy, there are two people, A and B, and two goods, ????1 and ????2. Their respective utility functions and endowments are ????????(????????1,????????2)=min{????????1,2????????2} ????????(????????1,????????2)=????????1+????????2 ????????=(6,13) ????????=(6,0). Note: The ????s and ????s in the equations above are not powers but rather superscripts to indicate each agent.
The minimum and maximum possible amounts of ????????2 on the contract curve are
Minimum ????????2=
Maximum ????????2=
The minimum and maximum possible amounts of ????????1 on the contract curve are
Minimum ????????1=
Maximum ????????1=
Contract curve is locus of all pareto Optimal Allocations
So at pareto effeciency
xA1 = 2*xA2
Mnimum ????????2=0
Maximum ????????2=6
The minimum and maximum possible amounts of ????????1 on the contract curve are:
Minimum ????????1= 0
Maximum ????????1=12
please see the attached file.
