Question

QUESTION 17 PLEASE.

NA compare them with your findings in part (b). 17. In a two person-two good economy, goods X and Y are perfect complements for John and Mary. There are 12 units of X and 6 units of Y available. Initially, John has 8 units of X and 2 units of Y and Mary has 4 units of X and 4 units of Y. (a) Draw an Edgeworth Box associated with this economy. Show the initial allocation and plot the indifference curves for both John and Marry that pass through the initial allocation point. (b) is the initial allocation pareto efficient? Discuss. (c) Find the set of pareto efficient allocations and show it on the Edgeworth Box.

Answer 1

Q17) a) Edgeworth box dimensions

12×6

Let John as individual 1

Mary as individual 2

(0,6) (812) Y 2 V Initial Allocation 1010) (610) (1210)

B) yes, initial Allocation is pareto effecient

Bcoz there doesn't exist any another Allocation where at least one individual can be made better off, without making the other worse off.

As U1 = Min(X,Y)

& U2 = Min (X,Y)

At initial Endowment level, U1 = Min(8,2) = 2

U2 = min(4,4) = 4

.

c) PO Allocations are shaded in region

vo (0,6) Set of P.Or allocations y v Initial Allocation (010) (610) (12,0) XI