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howme
23.09.2021 • 
Social Studies

Consider an Edgeworth box economy with two consumers with the following pref-erences and endowments. For consumer 1,u1(x11,x21) = (x11)a(x21)1−a, andω1=(1, 0). For consumer 2,u2(x12,x22) = (x12)b(x22)1−b, andω2= (0, 1).(a) Solve each consumer’s utility maximization problem to find their demand func-tions.(b) Use the market clearing condition to find the price ratio in Walrasian Equilib-rium.(c) Supposea=b=0.75. Draw the Edgeworth Box diagram for this economyshowing the Walrasian Equilibrium allocation and each consumer’s indiffer-ence curve passing through this allocation. Is the allocation Pareto Efficient? Isit Envy-Free?

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