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Suppose both Smith and Jones utility functions of U(X,Y) = X1/2Y1/2. Smith is endowed with (X,...

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Economics

Suppose both Smith and Jones utility functions of U(X,Y) =X1/2Y1/2. Smith is endowed with (X, Y) = (9,25) and Jones isendowed with (X, Y) = (25,9).

a. Draw an Edgeworth box with indifference curves through thisendowment.

b. At what combinations of X and Y are both better off (i.e.,are Pareto Improving)?

c. At what combinations of X and Y are there no more gains fromtrade (i.e., are Pareto Efficient)?

d. If they agreed on a price of one X for one Y, would they bebetter off?

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