If I had initial endowments XA = (0, X2), and XB = (X1, 0)
Is there any impact if both goods were inferior, X2 for A and X1 for B?
If I started with one equilibrium p* and went to another p* that had a
higher price for X1, could the second p* be an equilibrium (using a
Slutsky decomposition and keeping in mind the inferiority information
supplied)
Economics Homework Solutions
#2122
Edgeworth Box
If I had initial endowments XA = (0, X2), and XB = (X1, 0)
Is there any impact if both goods were inferior, X2 for A and X1 for B?
If I started with one equilibrium p* and went to another p* that had a higher price for X1, could the second p* be an equilibrium (using a Slutsky decomposition and keeping in mind the inferiority information supplied)?
The solution explains the concepts asked in the question very well. It begins by evaluating the impact of both goods being inferior and then goes into much more detail. The solution also presents a graph which makes it easy for the reader to understand the explanation. Overall, a very good response to a very difficult questions. The concept of Edgeworth box is explained very well.
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