Answered: Assume the situation of an exchange…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume the situation of an exchange economy.

(a) Determine the contract curve as an expression in which good I (x₁) is a function of good 2 (x₂).
(b) Provide a diagram that illustrates the contract curve and the core of the economy.
(c) Determine the Walrasian equilibrium prices.

,consider the following description of a two-goods example:
Assume two consumers with utility functions of the form
U* (*1, #2) = 2r2
and UY (V. 2)
Further, suppose that consumer X is endowed with w = (6, 2) and consumer Y with wY
= (2,6).

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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