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Consider country A that has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and xg where x, is an agricultural commodity and x; is an electronic good. The utility functions are as follows: and their endowments are given by (20,0) and (0, 10) respectively. Find the equilibrium price for the agricultural good in country A. Answer: Now consider country B that has also has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and x, where x, is an agricultural commodity and x, is an electronic good. The utility functions are as follows: # af, xf ) = In xf +In zf and their endowments are given by (50,0) and (0, 20) respectively. Find the equilibrium price for the agricultural good in country B. Answer: Now if the two countries start trading with each other what would be the equilibrium price for the agricultural good. [Hint: think about the total demand and total endowment across two countries, both countries will face the same price.] Answer: After trade opens, which of the following statement is true. Select one: a. Insufficient information b. Farmer in neither country is better off c. Farmer in both countries are better off d. Only the farmer in country A is better off e. Only the farmer in country B is better off

Consider country A that has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and xg where x, is an agricultural commodity and x; is an electronic good. The utility functions are as follows: and their endowments are given by (20,0) and (0, 10) respectively. Find the equilibrium price for the agricultural good in country A. Answer: Now consider country B that has also has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and x, where x, is an agricultural commodity and x, is an electronic good. The utility functions are as follows: # af, xf ) = In xf +In zf and their endowments are given by (50,0) and (0, 20) respectively. Find the equilibrium price for the agricultural good in country B. Answer: Now if the two countries start trading with each other what would be the equilibrium price for the agricultural good. [Hint: think about the total demand and total endowment across two countries, both countries will face the same price.] Answer: After trade opens, which of the following statement is true. Select one: a. Insufficient information b. Farmer in neither country is better off c. Farmer in both countries are better off d. Only the farmer in country A is better off e. Only the farmer in country B is better off

ENGR.ECONOMIC ANALYSIS
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 country A that has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and xg where x, is an agricultural commodity and x; is an electronic good. The utility functions are as follows: and their endowments are given by (20,0) and (0, 10) respectively. Find the equilibrium price for the agricultural good in country A. Answer: Now consider country B that has also has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and x, where x, is an agricultural commodity and x, is an electronic good. The utility functions are as follows: # af, xf ) = In xf +In zf and their endowments are given by (50,0) and (0, 20) respectively. Find the equilibrium price for the agricultural good in country B. Answer: Now if the two countries start trading with each other what would be the equilibrium price for the agricultural good. [Hint: think about the total demand and total endowment across two countries, both countries will face the same price.] Answer: After trade opens, which of the following statement is true. Select one: a. Insufficient information b. Farmer in neither country is better off c. Farmer in both countries are better off d. Only the farmer in country A is better off e. Only the farmer in country B is better off
Transcribed Image Text:Consider country A that has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and xg where x, is an agricultural commodity and x; is an electronic good. The utility functions are as follows: and their endowments are given by (20,0) and (0, 10) respectively. Find the equilibrium price for the agricultural good in country A. Answer: Now consider country B that has also has two types of consumers, a farmer (F) and an engineer (E), and two types of goods x, and x, where x, is an agricultural commodity and x, is an electronic good. The utility functions are as follows: # af, xf ) = In xf +In zf and their endowments are given by (50,0) and (0, 20) respectively. Find the equilibrium price for the agricultural good in country B. Answer: Now if the two countries start trading with each other what would be the equilibrium price for the agricultural good. [Hint: think about the total demand and total endowment across two countries, both countries will face the same price.] Answer: After trade opens, which of the following statement is true. Select one: a. Insufficient information b. Farmer in neither country is better off c. Farmer in both countries are better off d. Only the farmer in country A is better off e. Only the farmer in country B is better off
Expert Solution
Step 1

Farmer optimal demand of good x1  and x2:

Equating MRS  to price ratio

MRS = MUx1MUx2 =12 x112 x2 = x2x1

x2x1 = p1p2x2 = x1 p1p2

substituting the value in budget constraint:

p1*x1 + p2*x2 = Mp1*x1 + p2* x1*p1p2 = 20p1

x1* = 10

x2 = 10*p1p2

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