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Question: consider an exchange economy consisting of two people a and...

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Consider an exchange economy consisting of two people, A and B, endowed with two goods, 1 and 2. Person A is initially endowed with wA(4,8) and person B is initially endowed with w(4,0). Their preferences are given by UA(ri,r2)1 and UB(xi, r2) (a) Write the equation of the contract curve (express as a function of ) (b) Let P2 Find the cornpetitive equilibrium price, pi, and allocations, xA -(zl,r1) and B-B (c) Now suppose that person Bs preferences are instead given by UB(X1,X2) = min(x1,x2). Given a price of pi- (and assuming p2 = 1), what Pareto-optimal allocation will result from trade between the two people? (d) Briefly explain why this price and allocation combination are not a competitive equilibrium (e) Let p1. Find the actual competitive equilibrium price, pi, and allocations, (,2) and 1 2

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