Two consumers in an economy have utility functions given by = x/3y2/3 = U(x, y) UB(x,...

 

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Two consumers in an economy have utility functions given by = x¹/3y2/3 = U₁(x, y) UB(x, y) = x¹/4y³/4 Consumers are given endowments of x and y and can trade them at fixed prices. (a) Assume each consumer has an endowment of each good equal to 10 (i.e. e = eB 10). If the price ratio is equal to 1, how much demand will there be for each good? Does the market clear? = (b) What is the equilibrium price in the example above? (c) Compared to the initial endowment, will each consumer be consuming more or less of each good in equilibrium? Explain the intuition. (d) Solve for the equilibrium price as a function of arbitrary endowments. Explain how the price changes when endowments change. Two consumers in an economy have utility functions given by = x¹/3y2/3 = U₁(x, y) UB(x, y) = x¹/4y³/4 Consumers are given endowments of x and y and can trade them at fixed prices. (a) Assume each consumer has an endowment of each good equal to 10 (i.e. e = eB 10). If the price ratio is equal to 1, how much demand will there be for each good? Does the market clear? = (b) What is the equilibrium price in the example above? (c) Compared to the initial endowment, will each consumer be consuming more or less of each good in equilibrium? Explain the intuition. (d) Solve for the equilibrium price as a function of arbitrary endowments. Explain how the price changes when endowments change.

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Two consumers in an economy have utility functions given by UAx y x13y23 UBx y x14y34 Consumers are given endowments of x and y and can trade them at fixed prices a Assume each consumer has an endowme... View the full answer