1 General Equilibrium Endowment Economy An economy is comprised of two individuals, Mr. A and Mr....

1 General Equilibrium Endowment Economy An economy is comprised of two individuals, Mr. A and Mr. B. Each individual derives satisfaction from consuming goods x and y. Each is endowed with the following quantities of each good: XA = 30 YA = 60 XB = 20 YB = 20 Suppose Mr. A and Mr. B’s preferences are represented by the following utility functions: uA(xa, ya) = x 1 3 a y 2 3 a uB(xb, yb) = x 1 2 b y 1 2 b 1. Write down each individuals’ budget constraint. 2. Derive market demand functions for both good x and good y. 3. Find an expression that represents market supply in both markets. 4. Solve for the (partial) equilibrium prices in each of the markets. 5. Solve for the (general) equilibrium price ratio. 6. Can you determine a unique equilibrium price level in each market? Why or why not? 7. Solve for the equilibrium allocation of the goods. Prove that this allocation is Pareto efficient.

Expert Solution

Rahul Sunny answered 2 months ago

Question 1 The amazingly great economy of Brockway, is comprised of two types of firms: the...

Question 1 The amazingly great economy of Brockway, is comprised of two types of firms: the first type is setting price first then making goods. There are 50 of those firms. For the second type, they are setting price at the last opportunity, there are 35 of those types of firms. If potential output is 500, and the expected price level is 102. the alpha parameter is 1. a.[6 points] Using the sticky price model, find the Aggregate supply curve...

If general equilibrium prices hold in every market in an economy, then, compared to the equilibrium...

If general equilibrium prices hold in every market in an economy, then, compared to the equilibrium allocation: Group of answer choices If some resources were moved from the production of good x to the production of good y, then the amount produced of each good must go down If some resources were moved from production of good x to production of good y, at least some consumers would have to give up more x than they are willing to trade...

what happens to the equilibrium level of GDP if all the individuals in this experimental economy...

what happens to the equilibrium level of GDP if all the individuals in this experimental economy decide to spend less and save more? what effect does this have on the actual level of total saving in future onwards?

Consider an exchange economy with two agents, A, B, and two goods, x, y. A's endowment is...

Consider an exchange economy with two agents, A, B, and two goods, x, y. A's endowment is x = 6, y = 4, and B's endowment is x = 4, y = 6. (a) Suppose that A has utility function u(x, y) = x + y and B has utility function u(x, y) = xy. Find a competitive equilibrium allocation (CEA) and associated equilibrium prices. What difference would it make if A's endowment is x = 3, y = 1, and B's endowment...

Suppose that there are two individuals in an economy, A and B, and that their utility...

Suppose that there are two individuals in an economy, A and B, and that their utility possibility set is given by uB = 400 − 0.01u2A. Consider the point (uA,uB) = (100,300), is this point Pareto Efficient? Explain. Determine a linear social welfare function that has the point (100,300) as its maximum. Hint: the slope of the utility possibility frontier is given by −0.02uA. Start by determining the isowelfare line that goes through (100, 300).

Suppose an economy that starts in general equilibrium is thrown into a recession via a leftward...

Suppose an economy that starts in general equilibrium is thrown into a recession via a leftward shift in the IS curve. What type of monetary policy (expansionary or contractionary) could be beneficial in helping this economy return to general equilibrium? Why is such a policy beneficial? Are there consequences, risks or difficulties associated with implementing this policy? Discuss.

Consider the general equilibrium effects of monetary policy in a closed economy. If M decreases, the...

Consider the general equilibrium effects of monetary policy in a closed economy. If M decreases, the IS curve will ; the FE curve will ; and the LM curve will ; and r* will and y* will . Note: For each of the above blanks, fill in one of the following three choices: A. move to the right; B. move to the left; C. stay; D. increase; E. decrease.

Consider a two-period, small, open, endowment economy without investment and government expenditures, but with durable consumption...

Consider a two-period, small, open, endowment economy without investment and government expenditures, but with durable consumption goods. Purchases of durable consumption goods in period 1, denoted C1, continue to provide utility in period 2. The utility of households in period 2 depends on purchases of durable consumption goods in period 2 , denoted C2, and on the un-depreciated stock of durables purchased in period 1. Durable consumption goods are assumed to depreciate at the rate δ ∈ [0, 1]. Household...

Consider the exchange economy. It consists of two individuals, A and B. The only two goods...

Consider the exchange economy. It consists of two individuals, A and B. The only two goods available for consumption are red wine and choco- late. The endowment of the economy is 64 units of red wine and 16 units of chocolate. A’s endowment is wa ? and ca ? ; B’s endowment is wb ? and cb ? . The utility functions for each individual are U = 2(wa ca )1/2 and UB = 10(wBcB)1/2, where wj and cj are...

Consider an exchange economy with two individuals, A and B, and two goods, x and y....

Consider an exchange economy with two individuals, A and B, and two goods, x and y. Individual A has utility function UA(xA; yA) = xAyA, and individual B has utility function UB(xB; yB) = xByB. If there are 10 units of x and 10 units of y in the market, what is the equation of the contract curve? Group of answer choices yA = 0.5xA yA = 2xA yA = 5xA yA = xA

Question