Problem - Consider a potential, voluntary exchange between two people. Assume that both people have complete information about each other's preferences and that there are no transactions costs. Initially, Consumer A has 10 of X and 5 of Y, and Consumer B has 5 of X and 10 of Y. Consumers A and B's utility functions are:
UA = XY2
UB = X + Y
a. Calculate the marginal rate of substitution between goods X and Y for Consumer A at the current allocation.
b. Calculate the marginal rate of substitution between goods X and Y for Consumer B at the current allocation. Show your work.
c. Is this allocation of resources efficient? If it is, explain why. If it is not, what exchanges will make both parties better off? Explain your answer. For full credit, clearly specify whether A or B would get more X and y respectively.