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Edgeworth Box Practice Problems

This document outlines a problem set on an Edgeworth box economy model in microeconomics. It provides 7 examples of Edgeworth box diagrams with different production possibility frontiers and indifference curves. For each example, students are asked to [1] find the Pareto curve, [2] draw the Edgeworth box diagram, [3] find the equilibrium price, [4] find the equilibrium allocation, and [5] verify it is an equilibrium. The last few examples are marked as the most difficult. Students are also asked to explain changes in equilibrium price between the first three examples.

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Rakshit Didwania
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675 views1 page

Edgeworth Box Practice Problems

This document outlines a problem set on an Edgeworth box economy model in microeconomics. It provides 7 examples of Edgeworth box diagrams with different production possibility frontiers and indifference curves. For each example, students are asked to [1] find the Pareto curve, [2] draw the Edgeworth box diagram, [3] find the equilibrium price, [4] find the equilibrium allocation, and [5] verify it is an equilibrium. The last few examples are marked as the most difficult. Students are also asked to explain changes in equilibrium price between the first three examples.

Uploaded by

Rakshit Didwania
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Advanced Microeconomics

Problem set on Edgeworth box economy

𝑈1 𝑈2 𝑒1 𝑒2
0.5 0.5 0.3 0.7
1 𝑥11 𝑥12 𝑥21 𝑥22 (5,15) (15,15)
0.4 0.6 0.3 0.7
2 𝑥11 𝑥12 𝑥21 𝑥22 (5,15) (15,15)
0.5 0.5 0.3 0.7
3 𝑥11 𝑥12 𝑥21 𝑥22 (10,15) (10,15)
min⁡{𝑥1 , 2𝑥2 } 0.2 0.8
4** 𝑥21 𝑥22 (10,0) (0,10)
0.5 0.5 𝑥21 + 3𝑥22
5* 𝑥11 𝑥12 (5, 8) (5, 2)
6** 𝑥11 + 2𝑥12 2𝑥21 + 𝑥22 (5,5) (5,5)
7** min{𝑥11 , 3𝑥12 } min{2𝑥21 , 𝑥22 } (0,10) (10, 0)

In each of the example,

- Find the equation of Pareto curve

- Show the Pareto curve in the Edgeworth box diagram. The diagram should reflect the magnitude

of endowments, whether endowment is on Pareto curve, shape of the curve and whether curve is

passing through origins.

- Then find the equilibrium price.

- Using equilibrium price, find the 𝑥 ∗ , that is an equilibrium allocation.

- Verify that 𝑥 ∗ is an equilibrium allocation.

Questions with ‘**’ are toughest and with ‘*’ are tougher. Solely from scoring good grades in the course,

one can steer clear of them. But if one intends to provide better understanding of the concepts, one is

advised to try them.

In questions 1, 2, and 3, please provide intuitive economic explanation of change in equilibrium price.

Treat 1st sum as the base case.

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