Jack Spratt's utility function is U(F, L)= L.His wife's utility function is U(F, L)= F.If Jack's initial endowment is 40 units of F and 20 units of L and if Jack's wife's initial endowment is 24 units of F and 40 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box.

Question

Quizplus · Accepted Answer

Pareto optimality in an Edgeworth box does not require that the allocation be at a corner of the box. Pareto optimal allocations occur along the contract curve, which represents allocations where the marginal rate of substitution between goods F and L is equal for both Jack and his wife. These allocations can occur anywhere along the contract curve, not just at the corners of the Edgeworth box.

Jack Spratt's Utility Function Is U(F, L)= L