1.) In an endowment economy with market exchange, let two consumers have preferences given by the utility function U^{h}=(x_{1}^{h})^{a}*(x_{2}^{h})^{1-a}for consumer h (1,2) with endowments given by\omega _{1}^{1}=6, \omega _{2}^{1}=4, \omega_{1}^{2}=4, and \omega_{2}^{2}=6. a.) Calculate the consumers' demand functions. b. Selecting good 2 as the measure of value (i.e. p2=1) and with alpha=1/4, find the equilibrium price of good 1 which implies equilibrium levels of consumption of both goods for both consumers. c. Demonstrate whether both consumers' indifference curves are tangential at the equilibrium. Demonstrate whether both consumers' indifference curves are tangential at the initial endowment.
1.) In an endowment economy with market exchange, let two consumers have preferences given by the utility function U^{h}=(x_{1}^{h})^{a}*(x_{2}^{h})^{1-a}for consumer h (1,2) with endowments given by\omega _{1}^{1}=6, \omega _{2}^{1}=4, \omega_{1}^{2}=4, and \omega_{2}^{2}=6.
a.) Calculate the consumers'
b. Selecting good 2 as the measure of value (i.e. p2=1) and with alpha=1/4, find the
c. Demonstrate whether both consumers' indifference
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