Consider an economy with two people, Henry and Catherine, who consume two commodities, bread and water. Suppose that, due to a drought, the authorities decide to allocate exactly half the available water to each person.
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In order to prevent one person from “exploiting” the other, neither person may trade away any water to the other for exchange for more bread. Set up an Edgeworth Box to depict this situation and explain why it is unlikely to be Pareto efficient. Get Economics homework help today
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