Question

b. (5pts) Edgeworth Box: Suppose Adam and Bob are stuck on an island. The island has only two resources: coconuts and pineapples. Suppose that there are only 30 coconuts and 40 pineapples on the island. Suppose they initially split the coconuts and pineapples equally between each other. However, Adam prefers pineapples over coconuts and is willing to exchange 10 of his coconuts for 2 pineapples. Such a trade will increase his utility from 60 to 80 utils. Bob likes coconuts and pineapples equally and therefore is happy to trade two of his pineapples for 10 of Adams coconuts. Bob's utility also will increase from 100 to 140 utils. Use an Edgeworth Box showing Adam and Bob's indifference curves and utility levels based on the initial allocation and then show their new indifference curves and utility levels after the trade. Assume that the trade takes Adam and Bob to a Pareto Efficient allocation.

Answer 1

2( → coconuts. -, pineafples 4ml A dB equal allocah on olto exchange 2. + 2 22 0 30 t. /5 30 냐。