contract curve

classic Classic list List threaded Threaded
2 messages Options
Reply | Threaded
Open this post in threaded view
|

contract curve

akanksha
how to draw the contract cuve when
U1=min(x1y1)
u2=x2+ y2
endowment of 1=(10,10)
endowment of 2=(5,0)
plz explain thanx:)
Reply | Threaded
Open this post in threaded view
|

Re: contract curve

Dreyfus
Since agent 2 is indiferrent b/w x nd y so there is no bound on his consumption but agent 1's preferences are perfect complement ie his preferences are not flexible nd he will always consume equal qty of x nd y together and also total endowment of x =15 nd y=10. Thus the contract curve is the line x1=y1 ie the line joining the origin of agent 1 ((x1, y1) = (0,0)) nd pt.( x1,y1)= (10,10)