Consider an exchange economy with consumers A and B and goods ; total , total , optimally distributed. A's utility is and B's is . The contract curve for this exchange economy is
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DSE 2009 Question 49: General equilibrium and exchange economies
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Consider an exchange economy with consumers A and B and goods x,y; total x=4, total y=2, optimally distributed. A's utility is U_A=x_A²+4x_Ay_A+4y_A² and B's is U_B=x_B+y_B. The contract curve for this exchange economy is (A) the entire boundary of the edgeworth box (B) allocations satisfying (x_A=0, 0≤ y_A≤ 2) and (0≤ x_B≤ 4, y_B=0) (C) allocations satisfying (0≤ x_A≤ 4, y_A=0) and (x_B=0, 0≤ y_B≤ 2) (D) all points inside the edgeworth box.
Also written as: Consider an exchange economy with consumers A and B and goods x,y; total x=4, total y=2, optimally distributed. A's utility is U_A=x_A^2+4x_Ay_A+4y_A^2 and B's is U_B=x_B+y_B. The contract curve for this exchange economy is
General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
What this question tests
This question is on Edgeworth box and the contract curve, part of General equilibrium and exchange economies in Microeconomics.
The geometry of trade between two consumers and the set of efficient allocations.
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