Question

In: Economics

Suppose there are two consumers, A and B. The utility functions of each consumer are given...

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 = 120; Y = 6
B: X = 30; Y = 14

a) (20 points) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive 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?

Solutions

Expert Solution

Rahul Sunny answered 8 months ago
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