Question 2. An economy has two goods denoted by X and Y, and two agents, Agent 1 and Agent 2. For both agents, their indirect utility functions identical: For i = 1, 2, 1 Vi (Px, Py, m) = (p₁ +p²)¯m where Pa, Py denote prices the two goods, m the income and r is a fixed parameter. 1. What is the Marshallian Demand for Good Y of each agent? Let W1 price ratio 2. Now, assume that agents have endowments of the two goods which determines their income. (2, 1) and w₂ = (1,3) be the respective endowments. Calculate the market clearing Px/Py. - 3. In an economy such as this, explain why the area under the Marshallian Demand curve is a good measure of the change in welfare resulting from the change in the price of just one good.

Question 2. An economy has two goods denoted by X and Y, and two agents, Agent 1 and Agent 2. For both agents, their indirect utility functions identical: For i = 1, 2, 1 Vi (Px, Py, m) = (p₁ +p²)¯m where Pa, Py denote prices the two goods, m the income and r is a fixed parameter. 1. What is the Marshallian Demand for Good Y of each agent? Let W1 price ratio 2. Now, assume that agents have endowments of the two goods which determines their income. (2, 1) and w₂ = (1,3) be the respective endowments. Calculate the market clearing Px/Py. - 3. In an economy such as this, explain why the area under the Marshallian Demand curve is a good measure of the change in welfare resulting from the change in the price of just one good.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 2. An economy has two goods denoted by X and Y, and two agents, Agent 1 and Agent 2. For both agents, their indirect utility functions identical: For i = 1,2, vi(Pa, Py, m) = (pi+p₂) r m where pa, py denote prices the two goods, m the income and r is a fixed parameter. 1. What is the Marshallian Demand for Good Y of each agent? 2. Now, assume that agents have endowments of the two goods which determines their income. Let w₁ = (2, 1) and w2=(1,3) be the respective endowments. Calculate the market clearing price ratio px/py.
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True/False? Briefly explain. Assume good x is a normal good. In terms of consumer behavior, a cash grant and a small (relative to the initial consumption of x) limited non-matching grant on good x (with the limit that is equal to the cash grant) are essentially equivalent.
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