Consider the following exchange economy: u (x1, x2) = min{2x1, x2} u³ B (x, x) = min{x, 2x} =(2, 2) B = (2, 2) 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.
Consider the following exchange economy: u (x1, x2) = min{2x1, x2} u³ B (x, x) = min{x, 2x} =(2, 2) B = (2, 2) 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.
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.1P
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Transcribed Image Text:Consider the following exchange economy:
u (x1, x2) = min{2x1, x2}
u³ B
(x, x) = min{x, 2x}
=(2, 2)
B = (2, 2)
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.
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