# 3. Consider a pure exchange economy with two consumers. Consumer 1 is Donald and consumer 2 is Vladimir. There are two goods [burgers I and caviar y]. Each consumer’s initial

3. Consider a pure exchange economy with two consumers. Consumer 1 is Donald and consumer 2
is Vladimir. There are two goods [burgers I and caviar y]. Each consumer’s initial endowments consist of 1 unit of each good. Consumer 1’s utility function is uﬂzhyl] = 3:1 +y1, while consumer 2’s is H2(532, y2) = 532 + 215. (a) Represent this economy [preferences and initial endowments] in the Edgeworth box. (b) Find graphically the Pareto eﬂicient allocations in the Edgworth box. Is the initial endowments
point Pareto eﬂicient? “Thy? ‘Why not? (c) Draw the two oﬁ’er curves, one for each consumer. Using them, calculate the competitive
equilibrium of this pure exchange economy. You should indicate ﬁnal consumption of each
agent and the equilibrium prices (remember that you can normalize the price of one good to
be 1, pg = 1 for example]. nt: a competitive equilibrium allocation can always be found as an intersection —diﬁerent from the endowment— of the offer curves.

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