Question

For Wilma, peanut butter and jelly are perfect substitutes. She is willing to trade two ounces of jelly for one ounce of pean
(a) Assume Wilma's initial endowment is 10 ounces of peanut butter and 10 ounces of jelly. What is Fred's initial endowment of peanut butter and jelly?
(b) Indicate the endowment point with an E, in the Edgeworth Box.
(c) In the Edgeworth Box, label Wilma's indifference curve UW.
(d) In the Edgeworth Box, label Fred's indifference curve UF.
(e) Draw an indifference curve for Wilma through the endowment point.
(f) Draw an indifference curve for Fred through the endowment point.
(g) In the Edgeworth Box, shade all of the points that represent a Pareto Improvement from the initial endowment.
(h) In the Edgeworth Box place X's on all of the Pareto Efficient points that are feasible given the initial endowment.
Now assume that Wilma's utility function is U = J +2PB and Fred's utility function is U = min (2J, PB) where J is jelly and PB is peanut butter. If Wilma and Fred move to a Pareto efficient allocation from the initial endowment,
(i) What is the maximum utility that Wilma can attain?
(j) What is the minimum utility that Wilma can attain?
(k) What is the maximum utility that Fred can attain?
(l) What is the minimum utility that Fred can attain?
(m) What is price ratio of the goods at any Pareto Efficient allocation?

Answer​

Answer 1

Answer:

For Wilma, peanut butter and jelly are perfect substitutes. She is willing to trade two ounces of jelly for one ounce of peanut butter. For Fred, the two commodities are perfect complements. He consumes 2 ounces of peanut butter with 1 ounce of jelly. Assume that the quantity of peanut butter is fixed at 20 ounces and the quantity of jelly is fixed at 20 ounces. Below is the Edgeworth Box for the situation described. As shown, Wilma is in the lower left corner and Fred is in the upper right cor- ner, peanut butter is on the vertical axis and jelly is on the horizontal axis. Fred 20 19 18 17 16 15 14 13 12 11 Peanut Butter 10 7 6 5 4 3 2 1 0 0 1 2. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Wilma Jelly