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Marketing - The Competitive Equilibrium in an Exchange Economy and Its Representation Using an Edgeworth Box - Essay Example

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Title: Competitive equilibrium in an exchange economy and its representation using an Edgeworth Box Name: Course: Institution: In an exchange economy, it is every consumer’s goal to be at a competitive advantage than all other consumers. In the endevor to attain pareto optimality in consumption, several assumptions have been fronted in the analysis of attaining the desired efficiency…

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Marketing - The Competitive Equilibrium in an Exchange Economy and Its Representation Using an Edgeworth Box

126) The figure above indicates the consumption possibilities, the indifference curves and the budget constraints for the two consumers; Aisha and Robin. Let F represent food and C represent clothing; A=Aisha and R= Robin Therefore FA + FR= F and CA+CR= C The utility of Aisha, UA= FA + CA = B on the indifference curve The utility of Robin, UR= FR + CR = A on the indifference curve 1 A) Based on the figure above, points A and B indicates the pareto optimality points. These are the points at which the consumers will attain an efficient utility of the goods in the economy. At point A, Robin will be consuming the maximum he could for both the food and clothing. This is the point indicating how much he is ready and willing to lose for an equal amount from Aisha. In addition, at point A, Aisha is at optimal utility consuming a paltry UA= FA + CA while Robin has UR= FR + CR; this point indicates that Aisha though utilizing more of food than Robin she is satisfied as Robin utilize more clothes at this point than her. ...
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