Problem
i. Using an Edgeworth Box diagram, with peanut butter on the horizontal axis, and jelly on the vertical axis, please draw show how a set of prices can result in there being an excess supply of peanut butter and an excess demand for jelly, and explain why this is not a competitive equilibrium. Remember to label everything in the diagram.
ii. What will have to happen to peanut butter and jelly prices for there to be a competitive equilibrium?
iii. Is a competitive equilibrium also Pareto efficient? How do you know?