1. The core of an exchange economy is the set of all unblocked feasible allocations.

2. (a)

Consumer 1 has vertical indifference curve for he/she has strongly prefers to , and is indifferent to
.
Consumer 2 has horizontal indifference curve for he/she has strongly prefers to , and is indifferent to
.

(b)
Starting with either point inside the box, consumer 1 can always increase his utility by moving his
horizontal indifference curve to the right side without making consumer 2 worse off. Similarly, consumer
2 can always increase his utility by moving his vertical indifference curve to the bottom line without
making consumer 1 worse off.
Finally when consumer 1 consumes 100 units of good 1 and consumer 2 consumes 100 units of good 2
(their indifference curves intersect at the point (100,100)), can the exchange economy reach a feasible
and unblocked allocation.

(c)

3. The hypotheses of Theorem 5.6: If each consumer’s utility function, ui, is strictly increasing on Rn, then
Walrasian equilibrium allocation is in the core.
Under this hypothesis, every Walrasian equilibrium allocation is Pareto efficient.

4.
1) This allocation is not a feasible allocation (violate the “WEA should be feasible”)
For good 10, the sum of consumer’s endowments (60=10+11+12+13+14) is less than the sum of
consumer’s demand (65=13+13+13+13+13).

2) This allocation is blocked and not in the core.

For consumer 4, he is worse off compared to his original endowment (He consumes less for good 1, 2, 3,
4…9 than what he originally endowed).
For consumer 5, he is worse off compared to his original endowment (He consumes less for each good 1,
2, 3, 4…9, 10 than what he originally endowed).

3) This allocation is not Pareto Efficient. Since there are 5 units of good 3 remaining in the market,
everyone could make himself/herself better off by consuming one more unit of good 3 without making
others worse off.