Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
9th Edition
ISBN: 9780134143071
Author: PINDYCK, Robert, Rubinfeld, Daniel
Publisher: PEARSON
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Question
Chapter 16, Problem 3RQ
To determine
The reason for equal marginal rates of substitution along the points on the contract curve.
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Suppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade. Students in group A are given food (F) when they walk in, and students in group B are given a drink (D).
Refer to Scenario 1. Suppose that all members of both groups have identical preferences where food and drink provide utility U = FαDβ. The contract curve in the Edgeworth box using a student from each group would be
(a) a right angle connecting the lower left corner with the upper right corner.(b) a curve (not necessarily a line) connecting the lower left corner with the upper right corner.
(c) a line connecting the lower left corner with the upper right corner.(d) a right angle connecting the upper left corner with the lower right corner.
Dear tutor, please solve these True/False Questions. Thank You!
1. Any point on the contract curve is Pareto efficient regardless of the initial endowment.
2. When two people trade their initial endowments to a point on the contract curve, only the level of the endowments will determine the new allocation.
Consider a simple economy with two individuals (A and B) and two goods (x and y). Can you draw the Edgeworth Box Diagram and explain the contract curve?
Chapter 16 Solutions
Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
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- An 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_forwardIn a pure exchange economy with two goods, G and H, the two traders have Cobb-Douglas utility functions. Suppose that Tony’s utility function is UT = GTHT and that Margaret’s utility function is UM = GM(HM)2. Between them, they own 100 units of G and 50 units of H. a. Please solve for their contract curve. b. Please solve for the demand functions for the two goods for both Tony and Margaret, assuming p is the competitive price of G, and the price of H is normalized to equal one.arrow_forwardUsing an Edgeworth box: If two consumers view shoes and socks to be perfect complements and the world is endowed with 1000 units of socks and 600 units of shoes, derive the contract curve for this economy.arrow_forward
- Consider the barter exchange model owith 5 agents (A, B, C, D, and E) and 5 goods (a, b, c, d, and e), where agent A initially owns good a, agent B initially owns good b, agent C initially owns good c, agent D initially owns good d, and agent E initially owns good e. The preferences of the agents are given below. Find the allocation that is obtained by using the top trading cycles (TTC) procedure. Show your work in how you obtained your answer. Agent A: b> c> d > e>a Agent B: d > c> e> a > b Agent C: e > a > b> d>c Agent D: 6 > a > c> e>d Agent E: d > b > c> a > earrow_forwardHow is the Edgewroth Box diagram for exchange constructed?arrow_forwardWhat is the concepts of edgeworth box diagram, advantage zone, and contract curve.arrow_forward
- True false question. Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words, does this point lie on the contract curve?arrow_forward“Because all points on a contract curve are efficient, they are all equally desirable from a social point of view.” Do you agree with this statement? Discuss.arrow_forward“Because all points on a contract curve are efficient, they are all equally desirable from a social point of view.” Do you agree with this statement? Please explain whyarrow_forward
- Explain the simultaneous general equilibrium of production and exchange. Will it be possible to attain such equilibrium? When the product market is characterized by monopoly and the factor market by monopoly.arrow_forwardSuppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade. Students in group A are given food (F) when they walk in, and students in group B are given a drink (D). Refer to Scenario 1. Suppose they have very different preferences where food and drink provide utility. For group A, U = FαDβ. For group B, U = min{F,D}. The contract curve in the Edgeworth box using a representative from each group would be (a) a right angle connecting the lower left corner with the upper right corner.(b) a curve (not necessarily a line) connecting the lower left corner with the upper right corner. (c) a line connecting the lower left corner with the upper right corner.(d) a right angle connecting the upper left corner with the lower right corner.arrow_forwardDear tutor, please solve these True/False Questions. Thank You! Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words, does this point lie on the contract curve? A competitive equilibrium is not Pareto efficient if some members of society are unable to afford a necessary good.arrow_forward
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