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In: Economics

Suppose Filma and Trailor were the only inhabitants of an island. Filma has 10 units of...

Suppose Filma and Trailor were the only inhabitants of an island. Filma has 10 units of fish but no clothing. The trailor has 20 units of clothing but no fish. Consider the utility function U = F ∗ C (for both consumers). The price of clothing is $1 and the price of fish is $3.

A) write the budget constraints for Filma and Trailor. [HINT: convert the endowment into income using the given prices]

B) Calculate the utility maximizing bundles.

C) Do the optimal fish quantities add to the endowment? If the answer is no, specify whether there is excess demand (or shortage) or excess supply in the fish market?

D) Is the equilibrium competitive? Explain your answer.

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Expert Solution

Rahul Sunny answered 2 years ago
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