Based
on attached Figure 1, say:
What do points A and B
identify in terms of consumption for each...

Question

Based
 on attached Figure 1, say:
What do points A and B
 identify in terms of consumption for each person? (8 marks)Why is neither point A nor
 B on the contract curve? (8 marks)Which good is in excess
 demand? Explain your answer. (8 marks)Draw
 a box diagram, based on Figure 1, to show how the price of food relative
 to clothing must change to bring about a Pareto optimal equilibrium. (8
 marks)Draw
 a separate box diagram to show what the contract curve might look like if
 Aisha was concerned about very low consumption of food and clothing by
 Robin, but Robin was only concerned about his own consumption. (8 marks)
	
Document Preview: Aisha and Robin consume only food and clothing. Figure 1 below depicts the consumption possibilities for these two consumers.Point X is the endowment point showing an initial distribution of food and clothing between the consumers.Point P shows a budget constraint reflecting the price of food in terms of clothing.UA and UR are indifference curves for Aisha and Robin respectively.Figure 1: Consumption possibilities, indifference maps and budget constraint for Aisha and RobinBased on Figure 1, say:What do points A and B identify in terms of consumption for each person? (8 marks)Why is neither point A nor B on the contract curve? (8 marks)Which good is in excess demand? Explain your answer. (8 marks)Draw a box diagram, based on Figure 1, to show how the price of food relative to clothing must change to bring about a Pareto optimal equilibrium. (8 marks)Draw a separate box diagram to show what the contract curve might look like if Aisha was concerned about very low consumption of food and clothing by Robin, but Robin was only concerned about his own consumption. (8 marks)

David · Accepted Answer

Aisha and Robin consume only food and clothing. Figure 1 below depicts the consumption possibilities for these two consumers.
Point X is the endowment point showing an initial distribution of food and clothing between the consumers.
Point P shows a budget constraint reflecting the price of food in terms of clothing.
UA and UR are indifference curves for Aisha and Robin respectively.
Figure 1: Consumption possibilities, indifference maps and budget constraint for Aisha and Robin
Based on Figure 1, say:
What do points A and B identify in terms of consumption for each person? (8 marks)
Point A shows the combination of food and clothing consumed by Robin, given the price line. Point represents the consumption bundle that maximizes Robin’s utility given her budget.
Similarly point B, which lies on Aisha’s indifference curve, shows the consumption bundle that gives her optimal utility given her budget. Budget of both are dependent on the initial endowment X.

Based on attached Figure 1, say: What do points A and B identify in terms of consumption for each person? (8 marks) Why is neither point A nor B on the contract curve? (8 marks) Which good is in...

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