Exercise 1. Consider a two- good consumption problem. A consumer has no income, but has initial endowments w1 and w2 of the two goods. Assume that this consumer can buy and sell amounts of the two goods at fixed prices p1, p2 > 0.(i) Write down the consumers budget constraint, and sketch the correspondingbudget set. Carefully identify all relevant points and lines on your graph. Describe the relevant budget set using appropriate set notation.(ii) Using appropriate graphs, explain how the budget set derived in part (i) changesas a function of w1, w2, p1 and p2.

Exercise 1. Consider a two- good consumption problem. A consumer has no income, but has initial endowments w1 and w2 of the two goods. Assume that this consumer can buy and sell amounts of the two goods at fixed prices p1, p2 > 0.(i) Write down the consumers budget constraint, and sketch the correspondingbudget set. Carefully identify all relevant points and lines on your graph. Describe the relevant budget set using appropriate set notation.(ii) Using appropriate graphs, explain how the budget set derived in part (i) changesas a function of w1, w2, p1 and p2.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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