Consider a world with the following initial endowments for Ali and Amin. Ali has 15 pizzas and 20 six-packs of cola. Ami

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Consider a world with the following initial endowments for Ali
and Amin. Ali has 15 pizzas
and 20 six-packs of cola. Amin has 25 pizzas and 10 six-packs of
cola.
a) Draw an Edgeworth box depicting this situation.
(For consistency, put six-packs of
cola on the x-axis and pizzas on the y-axis). Label the initial
point A.
(3 m)
b) At the initial endowment point, Ali is willing to give up one
pizza for one six-pack of
cola and Amin is willing to give up three pizzas for one six-pack
of cola. Draw an
indifference curve for Ali and an indifference curve for Amin that
might show this
situation, in the Edgeworth box. (You don’t need to use the exact
numerical
information. Concentrate on the relationship between Ali and Amin’s
MRS). Is point
A Pareto-efficient? Explain.
(4 m)
c) Given the situation at the initial endowment point, shade in the
area of gains from
trade. Explain why Ali and Amin would be willing to trade in this
area.
(4 m)
d) Although there are many possibilities, draw a Pareto-efficient
point, given the initial
endowments. Label the Pareto-efficient point B. Draw an
indifference curve for both
Ali and Amin at that point. What is true about the MRS for Ali and
Amin at the
Pareto-efficient point?