Question: Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = X2Y UB(X,Y) = X*Y Therefore: For

Suppose there are two consumers, A and B.

The utility functions of each consumer are given by:

UA(X,Y) = X2Y

UB(X,Y) = X*Y

Therefore:

  • For consumer A: MUX= 2XY; MUY= X2
  • For consumer B: MUX= Y; MUY= X

The initial endowments are:

A: X = 70 Y = 16

B: X = 80; Y = 4

a)(20 points) Suppose the price of Y, PY= 1.Calculate the price of X, PXthat will lead to equilibrium.

b) (8 points) How much of each good does each consumer demand in equilibrium?

Consumer A's Demand for X:

Consumer A's Demand for Y

Consumer B's demand for X

Consumer B's demand for Y

c) (4 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

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