In: Economics
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:
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?