Consider an exchange economy with 2 consumers, A and B, and 2 commodities, x and y. Each consumer is initially endowed with one unit of x and one unit of y. (Hence, at prices pa and py thei wealth/incomes is (Px +Py).) Their preferences are as in question 1, above. a. Write the expression for each person's budget constraint. b. Determine their demand functions, i.e., solve their respective utility maximization. 1 c. Verify that Px = Py = are competitive equilibrium prices and determine the equilibrium 2 allocation. (Hint: what is the "supply" of x and y?) d Verify that the competitive equilibrium allocation is Pareto efficient
Consider an exchange economy with 2 consumers, A and B, and 2 commodities, x and y. Each consumer is initially endowed with one unit of x and one unit of y. (Hence, at prices pa and py thei wealth/incomes is (Px +Py).) Their preferences are as in question 1, above. a. Write the expression for each person's budget constraint. b. Determine their demand functions, i.e., solve their respective utility maximization. 1 c. Verify that Px = Py = are competitive equilibrium prices and determine the equilibrium 2 allocation. (Hint: what is the "supply" of x and y?) d Verify that the competitive equilibrium allocation is Pareto efficient
Calculus: Early Transcendentals
8th Edition
ISBN:9781285741550
Author:James Stewart
Publisher:James Stewart
Chapter1: Functions And Models
Section: Chapter Questions
Problem 1RCC: (a) What is a function? What are its domain and range? (b) What is the graph of a function? (c) How...
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Transcribed Image Text:Consider an exchange economy with 2 consumers, A and B, and 2 commodities, x and y. Each
consumer is initially endowed with one unit of x and one unit of y. (Hence, at prices px and py their
wealth/incomes is (Px +Py).) Their preferences are as in question 1, above.
a. Write the expression for each person's budget constraint.
b. Determine their demand functions, i.e., solve their respective utility maximization.
1
c. Verify that Px = Py = are competitive equilibrium prices and determine the equilibrium
2
allocation. (Hint: what is the "supply" of x and y?)
d. Verify that the competitive equilibrium allocation is Pareto efficient.
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