4. [20 marks] Avi (A) and Brad (B) live in an exchange economy where they consume...
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4. [20 marks] Avi (A) and Brad (B) live in an exchange economy where they consume cakes, x, and litres of beer, y. Both of their preferences are given by: u= aln(x) + (1 - a) ln(y) where 0 < a < 1. There are a total of n cakes and 3n litres of beer in the economy, where 3 > 0. a. Assuming Py = 1 and letting pr=p, show that there will be a constant equilibrium price, p* (a, 3), regardless of the initial distribution of x and y between Avi and Brad. What is this price? b. Consider a beer-heavy economy in which n = 10, a = 0.2 and 3= 8. Suppose Avi starts with all the beer, and Brad starts with all the cake. What will be the post-trade equilibrium? Who trades how much for what? Show the situation on an Edgeworth-box diagram with post-trade indifference curves. (Your diagram does not have to be 'to scale".) 4. [20 marks] Avi (A) and Brad (B) live in an exchange economy where they consume cakes, x, and litres of beer, y. Both of their preferences are given by: u= aln(x) + (1 - a) ln(y) where 0 < a < 1. There are a total of n cakes and 3n litres of beer in the economy, where 3 > 0. a. Assuming Py = 1 and letting pr=p, show that there will be a constant equilibrium price, p* (a, 3), regardless of the initial distribution of x and y between Avi and Brad. What is this price? b. Consider a beer-heavy economy in which n = 10, a = 0.2 and 3= 8. Suppose Avi starts with all the beer, and Brad starts with all the cake. What will be the post-trade equilibrium? Who trades how much for what? Show the situation on an Edgeworth-box diagram with post-trade indifference curves. (Your diagram does not have to be 'to scale".)
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Present ratio of red white in bluch 26 Cue have to make scaulet pint which ... View the full answer
Related Book For
Probability and Random Processes With Applications to Signal Processing and Communications
ISBN: 978-0123869814
2nd edition
Authors: Scott Miller, Donald Childers
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