1
answer
0
watching
57
views
28 Sep 2019
Q: Consider a two-good exchange economy with two individuals, A andB. A's preference is represented by uA(xA1, xA2) = 0.3ln(xA1) +0.7ln(xA2), and B's is represented by uB(xB1, xB2) = 0.8ln(xB1) +0.2ln(xB2). A's initial holding is (wA1, wA2) = (10,4) and B's is(wB1, wB2) = (8,12).
a) Calculate the demand function for each of A and B.
b) Find the competitive equilibrium relative price p1/p2, by equating the demand for good 1 (or good 2) to the supply of it.
c) Derive the equation which describes the set of efficient allocations (ie, contract curve).
Q: Consider a two-good exchange economy with two individuals, A andB. A's preference is represented by uA(xA1, xA2) = 0.3ln(xA1) +0.7ln(xA2), and B's is represented by uB(xB1, xB2) = 0.8ln(xB1) +0.2ln(xB2). A's initial holding is (wA1, wA2) = (10,4) and B's is(wB1, wB2) = (8,12).
a) Calculate the demand function for each of A and B.
b) Find the competitive equilibrium relative price p1/p2, by equating the demand for good 1 (or good 2) to the supply of it.
c) Derive the equation which describes the set of efficient allocations (ie, contract curve).
Namita kumariLv6
28 Sep 2019
