microeconomics, homeworkI have a question on an exercise on the (re)allocation of goods.
Assume there are two persons, A,B, and two goods, x,y, and person A will exchange three x for one y, while B will only exchange 1 x for 1 y. The question is, what is wrong with the current allocation, and how can we reallocate them in order to get a more efficient allocation?
My idea was to draw an edgeworth-box where the persons A,B each have been assigned a straight line: y=2-x/3 for person A, and y=2-x for person B (right?). but my question is, when reallocating, whom do we have to give what product?
It seems to be that no Edgeworth-box is needed for this particular question.
What is wrong with the current allocation?
It is not Pareto-efficient, because both individuals could benefit through trade. Suppose A gives 2 x for 1 y, both persons would be better off.
NB: This is of course assuming that A posesses a positive amount of x and B posesses a positive amount of Y. If any of that is not true, nothing is wrong with the current allocation.
Since we have no details on current stock of goods and utility functions, we cannot say what amount of goods should be interchanged at what price.
Btw, it seems to me that it is common practice to mark homework exercises as such by adding the homework tag.
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