tailieunhanh - Ebook Microeconomics (7th edition): Part 2

(BQ) Part 2 book "Microeconomics" has contents: General equilibrium and economic welfare, monopoly, pricing and advertising, oligopoly and monopolistic competition, game theory, factor markets, interest rates, investments, and capital markets, uncertainty, externalities, open access, and public goods,.and other contents. | 318 CHAPTER 10 General Equilibrium and Economic Welfare Figure Endowments in an Edgeworth Box (a) Jane’s endowment is ej; she has 20 candy bars and 30 cords of firewood. She is indifferent between that bundle and the others that lie on her indifference curve I1. (b) Denise is indifferent between her endowment, ed j (60 candy bars and 20 cords of wood), and the other Firewood, Cords (b) Denise’s Endowment Denise’s wood ej 30 Jane’s wood I1 j 0j Jane’s candy 0d 20 ed 20 Candy, Bars 1 Id 60 Denise’s candy Candy, Bars (c) Edgeworth Box Denise’s candy 60 A 1 Id e 30 20 f I1 j a Jane’s candy 30 B C 0j 0d Denise’s wood 80 50 Jane’s wood Firewood, Cords (a) Jane’s Endowment 1 bundles on Id . (c) Their endowments are at e in the Edgeworth box formed by combining panels a and b. Jane prefers bundles in A and B to e. Denise prefers bundles in B and C to e. Thus, both prefer any bundle in area B to e. 20 40 50 80 The height of the Edgeworth box represents 50 cords of firewood, and the length represents 80 candy bars, which are the combined endowments of Jane and Denise. Bundle e shows both endowments. Measuring from Jane’s origin, 0j, at the lower left of the diagram, we see that Jane has 30 cords of firewood and 20 candy bars at endowment e. Similarly, measuring from Denise’s origin, 0d, at the upper-right corner, we see that Denise has 60 bars of candy and 20 cords of firewood at e. Trading Between Two People 319 Mutually Beneficial Trades Should Jane and Denise trade? The answer depends on their tastes, which are summarized by their indifference curves. We make four assumptions about their tastes and behavior: ■ Utility maximization. Each person maximizes her utility. Usual-shaped indifference curves. Each person’s indifference curves have the ■ Nonsatiation. Each person has strictly positive marginal utility for each good, ■ usual convex shape. ■ so each person wants as much of the good as possible (neither .