2. Let two consumers have preferences described by the utility function: U* =log(x",)+log(x"2), h=1,2 and the endowments described below: Good 1 Good 2 Consumer 1 3 2 Consumer 2 2 3. a. Draw the Edgeworth box for the economy and the initial endowment of consumers 1 and 2. b. Suppose good 1 has a prize p1 and good 2 has a price of $1 (called the nummeraire). Write down the budget constraint for both consumers. c. Calculate the consumers' demand functions. d. Find the price of good 1. Then, find the equilibrium levels of consumption.

2. Let two consumers have preferences described by the utility function: U* =log(x",)+log(x"2), h=1,2 and the endowments described below: Good 1 Good 2 Consumer 1 3 2 Consumer 2 2 3. a. Draw the Edgeworth box for the economy and the initial endowment of consumers 1 and 2. b. Suppose good 1 has a prize p1 and good 2 has a price of $1 (called the nummeraire). Write down the budget constraint for both consumers. c. Calculate the consumers' demand functions. d. Find the price of good 1. Then, find the equilibrium levels of consumption.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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