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)

David · Accepted Answer

Solution 
Point A  represents that Robin is net buyer of food and net seller of cloth. This is seen in respect to the 
endowment point X. He consumes more food and less cloth as compared to his endowment. Point B is 
where Aisha maximizes her utility with respect to her budget constraint. She is net seller of food and net 
buyer of cloth as compared to her endowment.  
b)  Neither point A or B is on the contract curve. At the contract curve,

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...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment