Pino has 4 units of Seeds denoted by S and Gino has 5 units of Compost denoted by C. The utility of Pino is the same as the utility of Gino, namely

U(S,C)=ln(S)+ln(C)

Answer all of the following points:

a. Normalize the price of Seeds by 1, and let the price of Compost in terms of Seeds be p.  Solve for the equilibrium price of this exchange economy. 

b. Assume that both agents get b more Compost for their endowment. How does the price of Compost change? What happens to the income of both consumers? 

c. Pino has a cousin, Mimmo with an income of $ 40,000 this year and an expected income of $ 20,200 next year. He can borrow and lend money at an interest rate of 5%. The representative consumption good costs $ 100.75 per unit this year and there is no inflation next year. What are the present and future values of Mimmo’s endowment?

Answer rating: 100% (QA)

Steps Step 1 of 2 This problem is a combination of an exchange economy model and an intertemporal choice model Lets address each part of the question Part a Equilibrium Price of Compost Given Utility ... View the full answer