Suppose there are two consumers, A and B.

Question

Question # 00712246 Posted By: shortone Updated on: 10/31/2018 01:27 AM Due on: 10/31/2018

Subject Economics Topic Environmental Economics Tutorials:

Question

The utility functions of each consumer are given by:

UA(X,Y) = X*Y

UB(X,Y) = X*Y3

Therefore:

? For consumer A: MUX = Y; MUY = X

? For consumer B: MUX = Y3; MUY = 3XY2

The initial endowments are:

A: X = 6; Y = 7

B: X = 14; Y = 13

a) (40 points) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium.

b) (16 points) How much of each good does each consumer demand in equilibrium?

Consumer A?s Demand for X:

Consumer A?s Demand for Y

Consumer B?s demand for X

Consumer B?s demand for Y

c) (8 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

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score 3 · Accepted Answer · 10/31/2018 01:30 AM

Solution: Suppose there are two consumers, A and B.

Tutorial # 00712494 Posted By: shortone Posted on: 10/31/2018 01:30 AM

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