Consider an economy with no production. The economy is endowed with 50 bushels of alfalfa X and 50 bushels of barley Y. Two individuals, Tom and Harry, live in this economy. Tom has an initial endowment of (XET,YET)
= (50, 20)and Harry has an initial endowment of (XEH, YEH)= (10, 100). Tom and Harry have the following utility functions: UT(XT,YT)= XT^2*YT and U(XH,YH)= XH*YH^2
a)At the endowment point, what are the marginal rates of substitution between X and Y for Tom? For Harry?
b)Calculate the equilibrium price that you would obtain if Tom and Harry were to trade under perfectly competitive conditions.
c)Is the allocation of resources achieved above Pareto optimal? Explain.

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The Answer of Consider an economy with no production. The economy is endowed with 50 bushels of alfalfa X and 50 bushels of barley Y. Two individuals, Tom and Harry, live in this economy. Tom has an initial endowment of (XET,YET)
= (50, 20)and Harry has an initial endowment of (XEH, YEH)= (10, 100). Tom and Harry have the following utility functions: UT(XT,YT)= XT^2*YT and U(XH,YH)= XH*YH^2
a)At the endowment point, what are the marginal rates of substitution between X and Y for Tom? For Harry?
b)Calculate the equilibrium price that you would obtain if Tom and Harry were to trade under perfectly competitive conditions.
c)Is the allocation of resources achieved above Pareto optimal? Explain.

Consider an Economy with No Production