= Consider an economy with a single physical commodity and uncertainty captured by two states of...

 

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= Consider an economy with a single physical commodity and uncertainty captured by two states of nature S {a,b}. This economy is endowed with markets for two assets with payoffs r = [1 2] and r = [2 0] in states a and b respectively. There are on aggregate ten units of the commodity available in each state of nature. The economy is populated by two individuals h, k. Individual h has preferences Un (n(a), xn (b)) = log x(a) + log x (b). At equilibrium, x(a) 6 while x (b) = 2xk(a). Find equilibrium asset prices and allocation of the commodity in each state. = = Consider an economy with a single physical commodity and uncertainty captured by two states of nature S {a,b}. This economy is endowed with markets for two assets with payoffs r = [1 2] and r = [2 0] in states a and b respectively. There are on aggregate ten units of the commodity available in each state of nature. The economy is populated by two individuals h, k. Individual h has preferences Un (n(a), xn (b)) = log x(a) + log x (b). At equilibrium, x(a) 6 while x (b) = 2xk(a). Find equilibrium asset prices and allocation of the commodity in each state. =

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To find the equilibrium asset prices and allocation of the commodity in each state we need to solve for the optimal allocations of individuals h and k ... View the full answer