Consider an exchange economy that consists of two commodities (x and y) and two individuals (A...

 

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Consider an exchange economy that consists of two commodities (x and y) and two individuals (A and B). The individuals have the following utility functions: uA(xA,yA)=InxA +2lnyA uB(xB,yB)=2lnxB +InyB Initial endowments are R = (x,y) = (9,3) and R = (x,y) = (12,6). a) Solve the excess demand function for each good and verify that Walras's law is true. b) Find the equilibrium price ratio (hint: set one of the excess demand functions to zero). c) What is the equilibrium allocation? d) Sketch the Edgeworth box (indifference curves for both agents, initial endowment, price line and contract curve). Consider an exchange economy that consists of two commodities (x and y) and two individuals (A and B). The individuals have the following utility functions: uA(xA,yA)=InxA +2lnyA uB(xB,yB)=2lnxB +InyB Initial endowments are R = (x,y) = (9,3) and R = (x,y) = (12,6). a) Solve the excess demand function for each good and verify that Walras's law is true. b) Find the equilibrium price ratio (hint: set one of the excess demand functions to zero). c) What is the equilibrium allocation? d) Sketch the Edgeworth box (indifference curves for both agents, initial endowment, price line and contract curve).

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