Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F ? C. Derive the contract curve
What will be an ideal response?
Let F and C denote the farmer's final allotment of food and clothing. Setting MRS's equal yields F/C = (10 - F)/(20 - C) or F/C = 1/2. The contract curve is a ray from the origin with a slope of 1/2 (assuming food is on the vertical axis).
Economics
You might also like to view...
The TANF program is funded by _____
a. user fees b. the federal government and the states c. the federal government only d. the states only
Economics
If the stock market continues a steady climb upwards, this ____ consumer confidence and wealth, leading to ____ consumption, and ____ aggregate demand
a. increases, decreased, increased b. decreases, decreased, decreased c. increases, increased, increased d. increases, increased, decreased
Economics