Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 3E
To determine
The Edgeworth box diagram.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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.
Use the Fundamental Theorem of Exchange and draw Edgeworth Box diagrams to show the conditions necessary for an 'efficient' allocation of two goods between two individuals. Use this model to evaluate the statement: "If two individuals have identical endowments of both goods there are no possible gains from trade".
Hint: you need to develop your explanation of the theory and the efficiencyconditions step-by-step. You need to draw several diagrams showing Edgeworth Box
Grapes and bananas are perfect complements for Jane and Betty. Jane eats one grape per three bananas.; Betty eats three grapes per one banana. Once they go to sports for hours, Jane had 20 grapes and 10 bananas and Betty had 10 grapes and 20 bananas. (assume that grapes and bananas can be divided into half)
1. Draw the Edgeworth box for Jane and Betty. Place Jane at the origin and Betty on the upside-down. Draw their endowment point. (Grape on the horizontal axis and banana on the vertical)
Chapter 16 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
Knowledge Booster
Similar questions
- Grapes and bananas are perfect complements for Jane and Betty. Jane eats one grape per three bananas.; Betty eats three grapes per one banana. Once they go to sports for hours, Jane had 20 grapes and 10 bananas and Betty had 10 grapes and 20 bananas. (assume that grapes and bananas can be divided into half) 1. Draw the Edgeworth box for Jane and Betty. Place Jane at the origin and Betty on the upside-down. Draw their endowment point and 45 degree line . (Grape on the horizontal axis and banana on the vertical)arrow_forwardConsider two people in the market for tilapia, Reagan and Cheryl. The marginal benefit curves for both individuals are shown in the accompanying graph. a. Suppose the market price of tilapia is $2.00 per pound. Move point A to Cheryl’s quantity purchased. Move point B to Reagan’s quantity purchased. b. How many pounds of tilapia do they collectively purchase? _________ pounds c. To achieve an efficient allocation, Cheryl should purchase _______(more tilapia than, the same amount of tilapia as, less tilapia than) she is currently purchasing, and Reagan should purchase ________ (more tilapia than, the same amount of tilapia as, less tilapia than) she is currently purchasing.arrow_forwardConsider an exchange economy with 2 agents and 2 goods. In an Edgeworth-Bowley diagram, show and illustrate that if both agents have the same preferences, the contract curve is a straight line from the bottom left-hand corner to the top right-hand corner. Does it follow that if the agents do not have the same preferences, the contract curve is not a straight line? Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram. State and explain Walras Law. What are the implications of Walras’s Law? Illustrate Walras Law in an Edgeworth-Bowley diagram.arrow_forward
- Come up with an example with four agents and four items in which there is only one Pareto efficient allocationarrow_forwardRahim and Karim are two brothers. Rahim got 4 ice creams and 6 chocolates and Karim received 6 ice creams and 4 chocolates from heaven (the economy is assumed with no production and the amounts of goods they received as the initial endowments). The two brothers have the same Cobb-Doughlas preference structure. Draw the Edgeworth box and level the initial endowments. What is Pareto improvement? Does Pareto improvement possible here? If yes, show the Pareto improvement area in the Edgeworth box.arrow_forwardAn exchange economy consists of two individuals and two goods. The two individuals have the following Leontief utility functions: Person 1: U1(x1, y1) = 3x1 + y1 Person 2: U2(x2, y2) = x2 + 2y2 Person 1 has an endowment of e1 = (3, 2). Person 2’s endowment is e1 = (3, 4). In an Edgeworth Box diagram, show which allocations are in the core. Describe the set of Pareto optimal allocations (i.e. the contract curve) in the Edgeworth Box. Illustrate the contract curve in an Edgeworth Box diagram. Let good y be the numeraire (i.e. set py = 1 and let px = p). What price ratio(s) P* will support a competitive equilibrium allocation for this economy?arrow_forward
- Use the Fundamental Theorem of Exchange and draw Edgeworth Box diagrams to show the conditions necessary for an 'efficient' allocation of two goods between two individuals. Use this model o evaluate the statement: "If two individuals have identical endowments of both goods there are no possible gains from trade". Hint: you need to develop your explanation of the theory and the efficiency conditions step-by-step. You need to draw several diagrams showing Edgeworth Box (rather than drawing one complicated crowded diagram).arrow_forwardconsider an exchange economy with 2 goods (1 and 2) and 2 consumer (A and B). a bundle with x units of good 1 and y units of good 2 is written as (x,y). consumer A has an endowment (4,0) and consumer B has an endowment (12,12). the 2 goods are perfect substitutes for each consumer. consider an allocation in which A receives (1,9) and B receives (15,3) if we can redistribute endowments suitably, it is possible to obtain this allocation as the outcome of a competitive equilibrium. is this true or false? explain carefullyarrow_forwardBluth’s preferences for paper and houses can be expressed as Ub(p, h) = 2pb + hb, while Scott’s preferences can be expressed as Us(p, h) = ps + 2bs. Bluth begins with no paper and 10 houses, whereas Scott begins with 10 units of paper and no houses. 1. Is the starting endowment Pareto efficient? Justify your answer using an Edgeworth box? Determine whether each of the following price pairs is consistent with a competitive equilibrium. If yes, determine the resulting allocation of goods, sketching that equi- librium in your Edgeworth box. If not, explain why not (for what good is there a shortage, for what good is there a surplus?) pp =$3 and ph =$1 along with pp =$1 and ph =$1 Assume that the price of houses is $1. Given that price, determine the highest price pp that is consistent with a competitive equilibrium.arrow_forward
- 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.arrow_forwardConsider the figure attached which shows the combined production function of Anna and Bob.Suppose a scenario where the Government has introduced a new social welfare program to cater to the poor of the society, wherein the reservation wage increases from 2 bushels of wheat to 6 bushels of wheat. Draw a new diagram to show the impact of this welfare program and comment on who do you think would benefit from this intervention? Additionally, does the outcome of this intervention results in an allocation which is a pareto efficient one? Explain your reasoning. (Make sure your diagram is fully labelled)arrow_forwardI need help with this homework problem. Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = (X^1/2)*(Y^1/2) UB(X,Y) = X + Y The initial endowments are: A: X = 8; Y = 3 B: X = 4; Y = 5 What is the marginal rate of substitution for consumer A at the initial allocation? What is the marginal rate of substitution for consumer B at the initial allocation? Is the initial allocation Pareto Efficient?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning