Consider the following exchange economy: u (x1, x2) min {2x1, x2} =(2,2) B = (2, 2) u³ (x, x2) = min{x, 2x} Let P₁/P2 denote the relative price. Suppose = 1. = (a) Show that both markets clear at this relative price by computing the optimal consumption plan for each consumer and showing that these plans are feasible. (b) What is the associated WEA? How many units are bought and sold on each market? (c) Illustrate this equilibrium in an Edgeworth Box diagram. Your diagram should include the WEA, the budget line, and each con- sumer's indifference curve through the WEA.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.1P
Question
Please correct answer and don't use hend raiting
Consider the following exchange economy:
u (x1, x2)
min {2x1, x2}
=(2,2)
B = (2, 2)
u³ (x, x2) = min{x, 2x}
Let P₁/P2 denote the relative price. Suppose = 1.
=
(a) Show that both markets clear at this relative price by computing
the optimal consumption plan for each consumer and showing that
these plans are feasible.
(b) What is the associated WEA? How many units are bought and
sold on each market?
(c) Illustrate this equilibrium in an Edgeworth Box diagram. Your
diagram should include the WEA, the budget line, and each con-
sumer's indifference curve through the WEA.
Transcribed Image Text:Consider the following exchange economy: u (x1, x2) min {2x1, x2} =(2,2) B = (2, 2) u³ (x, x2) = min{x, 2x} Let P₁/P2 denote the relative price. Suppose = 1. = (a) Show that both markets clear at this relative price by computing the optimal consumption plan for each consumer and showing that these plans are feasible. (b) What is the associated WEA? How many units are bought and sold on each market? (c) Illustrate this equilibrium in an Edgeworth Box diagram. Your diagram should include the WEA, the budget line, and each con- sumer's indifference curve through the WEA.
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