5. Consider an exchange economy with A and B, where A has an endowment of x = 5 & y = 25, and B has an endowment of x = 20 & y = 10. Both A and B have the utility function u(x,y) = xy. Say A gives B 6 units of y, and B gives A 3 units of x. After the trade

(a.)Both are better off

(b.)Only A is better off

(c.)Only B is better off

(d.)Both are worse off

6. In an exchange economy, A has an endowment of 10 units of x and 30 units of y, and B has 30 units of x and 15 units of y. Both A and B have u(x,y) = xy. If the price of x is $5, and the price of y is $6, then A has an income of ____ and B has an income of ____.

(a.) 260; 180

(b.) 260; 240

(c.) 230; 180

(d.) 230; 240

7. Consider the economy in problem 6. In this economy, A’s optimal demand for good x is (a.) 15.5 (b.) 17.2 (c.) 23 (d.) 11 8.Consider the economy in problem 6. Find B’s optimal demand for good x.

(a.)19.5

(b.)20

(c.)22.5

(d.)24

8. Consider the economy in problem 6. Find B’s optimal demand forgood x.

(a.) 19.5

(b.) 20

(c. )22.5

(d.) 24

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