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exchange economy numerical

PRACHI 214
5 posts
can someone please tell me how to solve this i am getting option d as my answer but right answer is optio c .
A and B live in an exchange economy. There are two
goods X and Y . utility functions of A and B are  
U of A(x, y) = x + y and
U of B(x, y) = x^2+y^2
, respectively. A’s endowment is 2 units of X and 1 unit
of Y , while B’s endowment is 1 unit of X and 2 units of Y . Consider the
following allocations
Allocation 1: A gets 1.5 units of X and zero unit of Y , B gets 1.5 units of X and 3 units of Y
Allocation 2: A gets 1.5 units of X and 1.5 unit of Y , B gets 1.5 units of X
and 1.5 units of Y
(a) Both the allocations are Pareto optimal
(b) None of the allocations is Pareto optimal
(c) Only allocation 1 is Pareto optimal
(d) Only allocation 2 is Pareto optimal
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Re: exchange economy numerical

Rayee
41 posts
Plot A and B's preference in an Edgeworth box. A's ICs are downward sloping straight lines, B's ICs are concave from B's POV. Clearly, there will be corner solution. Locate the first and second allocations, you will realize that only in the first allocation it is not possible to make some one better off without making the other worse off.
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Re: exchange economy numerical

Batman!
44 posts
Hey Rayee!
You’re smart. :-)
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Re: exchange economy numerical

Rayee
41 posts
Thanks batman, the joker told me the answer, he is studying exchange economy these days :-)
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Re: exchange economy numerical

PRACHI 214
5 posts
In reply to this post by Batman!
THANKS RAYEE I GOT IT....