1. Consider a pure exchange economy with two consumption goods, X and Y, and two consumers,
A and B. There are 20 units of X and 20 units of Y in the economy. The preferences of the consumers
are represented by the following utility functions:
UA(XA, YA) = XA + YA
UB (XB, YB) = (XB)^2YB
b) Sketch the indifference curves and the initial allocation on an appropriate diagram. In your diagram
identify the area where there is scope for a Pareto improvement and explain why this is the case.