Robinson Crusoe and Friday are the two only person on a small island. Suppose there are only two goods available for consumption, good and good . Robinson has initial endowment of 1 unit of and 2 units of , while Friday has 2 units of and 1 unit of . Robinson and Friday have the same utility function being , where and are the amount of good and the amount of good that individual consumes.
(a) Calculate the reservation utility levels of Robinson and Friday.
(b) If Robinson proposes a new allocation: for Robinson, and for Friday, where the first number in the parentheses represents amount of good and the second number represents the amount of good . Should Friday accept the offer?
(c) Based on (b), is the initial endowment allocation “pareto efficient”?
(d) Derive the formula for pareto efficient locus in this two-person exchange economy.
(e) Graph initial endowment allocation, pareto efficient locus, contract curve, and all allocations that are pareto superior to the initial endowment.
(f) Calculate the competitive equilibrium allocation, and the equilibrium price ratio of good to good .
Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.