Question: Halloween is an old American tradition. Kids go out dressed in costuMeand neighbors give them candy when they come to the door. Spike and Cinderella are brother and sister. After a long night collecting candy, they sit down as examine what they have. Spike finds that he has 40 candy bars and 20 packs of gum. His sister finds she has 30 candy bars and 40 packs of gum. Spike likes candy bars exactly twice as much as gum and would always be willing to trade two packs of gum for one candy bar. Cinderella, on the other hand, likes gum exactly twice as much as candy bars and would always be willing to trade two candy bars for one pack of gum.

a. Illustrate this situation in an Edgeworth box. Let Spike’s origin be in the lower left, and Cinderella’s be in the upper right hand corner. Put candy bars on the horizontal axis and gum on the vertical.

b. Now draw in indifference curves for the two agents that reflect the description given above. Indicate the endowment point, and the contract curve. Illustrate a competitive equilibrium. Is there more than one competitive equilibrium?