Consider a two-period exchange economy with two expected utility maximizing agents: agent A and agent B....

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Consider a two-period exchange economy with two expected utility maximizing agents: agent A and agent B. They have identical utility functions: U(c.c(s))=c+logc(s), i=A,B wherec, is the consumption level at time 0, and c, (s) is the consumption level at date 1 if state s occurs. Assume there are two possible states of nature at date 2, labelled s1 and 52. The two states are equally likely. The following table describes the endowment, y, structure Date t=0 Date t=1 Date t=1 Agent A Agent B 4 2 S = S1 3 1 S = S2 1 3 a) Suppose there exists a complete set of Arrow-Debreu securities (i.e., one for each state). Define an Arrow-Debreu equilibrium using the information in the table. b) Solve for the Arrow-Debreu equilibrium. Consider a two-period exchange economy with two expected utility maximizing agents: agent A and agent B. They have identical utility functions: U(c.c(s))=c+logc(s), i=A,B wherec, is the consumption level at time 0, and c, (s) is the consumption level at date 1 if state s occurs. Assume there are two possible states of nature at date 2, labelled s1 and 52. The two states are equally likely. The following table describes the endowment, y, structure Date t=0 Date t=1 Date t=1 Agent A Agent B 4 2 S = S1 3 1 S = S2 1 3 a) Suppose there exists a complete set of Arrow-Debreu securities (i.e., one for each state). Define an Arrow-Debreu equilibrium using the information in the table. b) Solve for the Arrow-Debreu equilibrium.

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a An ArrowDebreu equilibrium consists of Prices ps1 ps2 for the tw... View the full answer