Question

Consider a pure exchange economy with two goods x and y. Ravi and Suraj are two individuals with utility functions $U_R = \beta log(xy)$ and $U_s = (x/y)^{\alpha},$ respectively. The endowments are $x_R$ and $y_R$ for Ravi and $x_s$ and $y_s$ for Suraj such that $x_R$+$x_s$ = A and $y_R + y_s= B$. Then their contract curve is

• A. $Ay_R$ -$Bx_R$ = 0
• B. $Ay_R$ + $Bx_R$ - $2Y_RX_R$ = 0
• C. $Ay_R$ + $Bx_R$ -$Y_RX_R$= 0
• D. $Ay_R$ - $Bx_R$ + $2Y_RX_R$= 0

Answer 1

Answer: (B)

$Ay_R$ + $Bx_R$ - $2Y_RX_R$ = 0

Answer 2

The correct option is (B): $Ay_R$ + $Bx_R$ - $2Y_RX_R$ = 0