Suppose an economy consists of two consumers, A and B, two outputs, X and Y, and two inputs, L and K, available in fixed supply, L and K.
(a) Show that this economy in general competitive equilibrium will be simultaneously efficient (Pareto optimal) in consumption, production, and in the choice of product mix.
(b) What determines whether or not this Pareto efficient allocation is fair? Use Edgeworth box analysis to illustrate your answer.