B.II.2 Citizens of Betaville consume two goods, beets q₁ and butter q2. Preferences over the two goods aredescribed by direct utility functionu (91, 92) = 2√√91 + In q2and quantities are chosen to maximise utility subject to a budget constraint p1q1 + P292 ≤y wherey is total spending and p₁ and p2 are prices of the two goods.[1 − √/1 + 4y/p₁]fi (U₁P₁, P₂) = [1Betaville is a pure exchange economy populated by H citizens who have identical individual endow-ments of beets and butter given by w₁ and 2.(b) Explain the concept of Walrasian equilibrium and find the unique Walrasian equilibrium relativeprice P*.(c) Suppose each individual's endowment of the two goods is doubled. What happens to theequilibrium price? Discuss.

In economics, a Walrasian equilibrium, also known as a competitive equilibrium, is a fundamental…

B.II.2 Citizens of Betaville consume two goods, beets 9₁ and butter 92. Preferences over the two goods are described by direct utility function u (91, 92) = 2√√9+ In q2 and quantities are chosen to maximise utility subject to a budget constraint p191 + P292 ≤y where y is total spending and p₁ and p2 are prices of the two goods. f₁ (9₁P₁₁ P2) = [1 − √/1 + 4y/pi]² Betaville is a pure exchange economy populated by H citizens who have identical individual endow- ments of beets and butter given by w₁ and 2. (b) Explain the concept of Walrasian equilibrium and find the unique Walrasian equilibrium relative price P*. (c) Suppose each individual's endowment of the two goods is doubled. What happens to the equilibrium price? Discuss.

B.II.2 Citizens of Betaville consume two goods, beets 9₁ and butter 92. Preferences over the two goods are described by direct utility function u (91, 92) = 2√√9+ In q2 and quantities are chosen to maximise utility subject to a budget constraint p191 + P292 ≤y where y is total spending and p₁ and p2 are prices of the two goods. f₁ (9₁P₁₁ P2) = [1 − √/1 + 4y/pi]² Betaville is a pure exchange economy populated by H citizens who have identical individual endow- ments of beets and butter given by w₁ and 2. (b) Explain the concept of Walrasian equilibrium and find the unique Walrasian equilibrium relative price P*. (c) Suppose each individual's endowment of the two goods is doubled. What happens to the equilibrium price? Discuss.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a consumer with income M, who can buy good 2₁ at price p₁ per unit and can buy good x2 at price p2 per unit. Consider a budget constraint diagram for this consumer, with quantity of good *1 measured along the horizontal axis and quantity of good 2 measured along the vertical axis. If p₁ increases and p2 increases (though not necessarily by the same percentage), while M remains unchanged, which of the following changes to the consumer's budget set definitely occur? The budget line slope becomes steeper The budget set becomes strictly larger None of these changes necessarily occur The budget set becomes strictly smaller O The budget line slope becomes flatter
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