Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 16, Problem 6E
To determine
The straight line contract curves.
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Students have asked these similar questions
Consider 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?Β
Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram.Β
State and explain Walras Law. What are the implications of Walrasβs Law? Illustrate Walras Law in an Edgeworth-Bowley diagram.
In a problem involving exchange, the contract curve shows:
all exchanges that make both parties better off.
all possible allocations of goods between both parties.
the one exchange that makes both parties better off.
all possible efficient allocations between both parties.
Remy and Emile consume only blueberries (x,) and raspberries (x,). Remy has utility function UR =
x (x5)Β² and Emile has utility function UE = (xf)Β²x. Remy is endowed with 5 blueberries and 5
raspberries and Emile is endowed with 10 blueberries and 10 raspberries.
(a) Derive the equation of the contract curve, i.e., find x%(xf).
(b) Set x2 as the numeraire, i.e., assume p, = p and p2 = 1. Find the competitive equilibrium β the
equilibrium price ratio, P1/P2, and the equilibrium allocation, ((xf, x5), (xf,xΒ£ )).
Chapter 16 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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- In an exchange economy, there are two people (Shadi and Nino) and two goods (x1Β and x2). Their initial endowments are ΟSΒ = (2, 4) and ΟNΒ = (3, 6). Their utility is given by the following functions: US(x1,x2) = x12x23Β and UN(x1,x2) = x1x24. Which of the following is the equation for the contract curve? Group of answer choices a. x2NΒ = 96x1NΒ / (15 + 4x1N) b. x2NΒ = 47x1NΒ / (8 + 4x1N) c. x2NΒ = 91x1NΒ / 5 d. x2NΒ = 16x1NΒ / (3 + x1N) e. x2NΒ = 41x1NΒ / (9 + x1N)arrow_forwardUsing an Edgeworth box:Β 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_forwardSuppose there are only two individuals A and B in the economy with utility function of first individual given as U(A) = In(x1) + y12, and utility function of second person given as, U(B) = x2^0.5 + In(y2). Which of the following provides for the equation of contract curve. In(x1) + y12 = x2^0.5 + In(y2) x1/x2 = y1/y2 yl/y2 = x^20.5/x1 x2^0.5/2 x1 = y2/y1 Nextarrow_forward
- Give typing answer with explanation and conclusionΒ Β Consider an exchange economy consisting of two people, A and B, endowed with two goods, 1 and 2. Person A is initially endowed with ΟA = (0,10) and person B is initially endowed with ΟB = (11,0). They have identical preferences, which are given by U^A(x1,x2) = U^B(x1,x2) = x1^2*x2. Suppose that p2 =1. Under the competitive equilibrium, what is p1? Round answers to two decimal places.arrow_forwardSuppose there are only two individuals A and B in the economy with utility function of first individual given as U(A) = In(x1) + y12, and utility function of second person given as, U(B) = x2^0.5 + In(y2). Which of the following provides for the equation of contract curve. In(x1) + y12 = x2^0.5 + In(y2) yl/y2 = x^20.5/x1 x2^0.5/2 x1 = y2/y1 x1/x2 = y1/y2arrow_forwardUse the figure below to answer the following question. Point X and Y represent two non-ideal contracts that the individual is faced with buying. From this information, you can conclude the at the individual prefers: Utility A Is Ρ Π² C E[B, IH point Y- the actuarially fair, but partial contract point Y- the actuarially unfair but full contract point X- the actuarially fair, but partial contract point X- the actuarially unfair but full contract U(I) Nomearrow_forward
- Use the figure below to answer the following question. Point X and Y represent two non-ideal contracts that the individual is faced with buying. From this information, you can conclude the at the individual prefers: Utility A Ρ Π² iD 1 Ρ E[B, IH Is point X- the actuarially fair, but partial contract point Y- the actuarially fair, but partial contract point Y- the actuarially unfair but full contract point X- the actuarially unfair but full contract U(I) incomearrow_forward22) Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F * C. Derive the contract curve. 23) Robinson starts out with 10 lobsters and 5 coconuts. Friday starts out with 10 lobsters and 15 coconuts. After trading, Robinson ends up with 8 lobsters and 10 coconuts. Robinson feels neither better nor worse off than when he started but cannot get Friday to agree to any more trades. Friday feels better off than when he started. Draw the Edgeworth box consistent with this story.arrow_forwardConsider an economy with two agents, Amy and Becky, and two goods, x and y. Amy's utility function is UA(x, y) = XAYA, and Becky's utility function is UB = min{4xB, YB} Amy and Becky's endowments are both wA = WB = (4, 1). Suppose that the contract curve in this economy can be represented as YA = mxA. Find m. Answer: The correct answer is: 4.0 In an exchange economy there are two people (A and B), and two goods (x and ). Their respective utility functions and endowments are: UA(xA, YA) = 5xA + YA, UB(xB, YB) = XB + 5yB; WA = WB = (10, 10). What is the minimum possible amounts of xA in the core? Round your answer to 2 decimal points. Answer: The correct answer is: 12.00arrow_forward
- 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 = FΞ±DΞ². 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.arrow_forwardConsider a simple economy with two individuals (A and B) and two goods (x and y).Β Can you draw the Edgeworth Box Diagram and explain the contract curve?arrow_forwardWhat is agent theory?arrow_forward
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