Suppose there are two consumers, A and B.

Question # 00712246 Posted By: shortone Updated on: 10/31/2018 01:27 AM Due on: 10/31/2018
Subject Economics Topic Environmental Economics Tutorials:
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Suppose there are two consumers, A and B.


The utility functions of each consumer are given by:


UA(X,Y) = X*Y

UB(X,Y) = X*Y3



?        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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