John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6 liters of soft drinks and 2 sandwiches. With these endowments, John's marginal rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina's (MRS) of soft drinks for sandwiches is equal to 1/3. a) Is this allocation of resources efficient? Explain. b) Now suppose that there is a large number of Johns and a large number of Tinas and suppose that the price of a sandwich is $1 and the price of a soft drinks is $3. Given these prices and given the initial allocations, do vou thin

John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6 liters of soft drinks and 2 sandwiches. With these endowments, John's marginal rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina's (MRS) of soft drinks for sandwiches is equal to 1/3. a) Is this allocation of resources efficient? Explain. b) Now suppose that there is a large number of Johns and a large number of Tinas and suppose that the price of a sandwich is $1 and the price of a soft drinks is $3. Given these prices and given the initial allocations, do vou thin

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.1P

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Jane has 11 liters of soft drinks and 10 sandwiches. Bob, on the other hand, has 9 liters of soft drinks and 10 sandwiches. With these endowments, Jane's marginal rate of substitution (MRS) of soft drinks for sandwiches is 6 and Bob's MRS is equal to 8. Draw an Edgeworth box diagram to show whether this allocation of resources is efficient. If it is explain why. If it is not, what changes will make both parties better off? Part 2 1.) Using the three-point curved line drawing tool, draw an indifference curve for Jane when consuming 11 liters of soft drinks and 10 sandwiches. Label this curve UJ. 2.) Using the three-point curved line drawing tool, draw an indifference curve for Bob when consuming 9 liters of soft drinks and 10 sandwiches. Label this curve UB.
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Two individuals, Fred and Helen, are in an economy with no production, and each have the utility function U = 10XY. Prices of both X and Y are set at $1. Initial endowments for Fred are 10 units of X and 6 units of Y. Helen has 8 units of X and 12 units of Y. Find the general equilibrium prices and allocation, then show that the G.E. allocation is Pareto efficient.
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