Asked by
James Maxwell
on Oct 14, 2024
Verified
Morris has the utility function U(b, w) 4b 16w and Philip has the utility function U(b, w) bw, where b is the number of books consumed per month and w is bottles of wine consumed per month.If we draw an Edgeworth box with books on the horizontal axis and wine on the vertical axis and if we measure Morris's consumptions from the lower left corner of the box, then the contract curve contains
A) a straight line with slope 1/4 passing through the lower left corner of the box.
B) a straight line running from the upper right corner of the box to the lower left.
C) a straight line with slope 1/4 passing through the upper right corner of the box.
D) a curve that gets steeper as you move from left to right.
E) a curve that gets flatter as you move from left to right.
Contract Curve
In an Edgeworth Box diagram, the locus of points representing the set of mutually beneficial allocations between two parties.
Edgeworth Box
A diagram used in microeconomics to show the distribution of resources between two consumers on a two-good world, demonstrating how trade can lead to Pareto improvements.
Utility Function
A mathematical representation that ranks individuals' preferences for bundles of goods or services, indicating levels of satisfaction.
- Attain knowledge on how to establish and interpret Edgeworth boxes for a range of economic circumstances.
- Determine Pareto optimal allocations and apprehend the circumstances leading to their manifestation.
- Advance the skill of graphically presenting economic interactions and allocations, with the use of diagrams inclusive of Edgeworth boxes.
Verified Answer
PV
Learning Objectives
- Attain knowledge on how to establish and interpret Edgeworth boxes for a range of economic circumstances.
- Determine Pareto optimal allocations and apprehend the circumstances leading to their manifestation.
- Advance the skill of graphically presenting economic interactions and allocations, with the use of diagrams inclusive of Edgeworth boxes.