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1. Consider an economy with two consumers, A and B. There are two goods. Suppose the utility functions are UA(c1,c2)=c1+c2,UB(c1,c2)=min{c1,c2}. The endowments are yA=[10],yB=[21] a.
1. Consider an economy with two consumers, A and B. There are two goods. Suppose the utility functions are UA(c1,c2)=c1+c2,UB(c1,c2)=min{c1,c2}. The endowments are yA=[10],yB=[21] a. Show the Edgeworth box for this economy, with the indifference curves corresponding to the endowment allocation. b. Explain why it has to be the case that p1>0 and p2>0 if (p1,p2) is an equilibrium price vector. The offer curve for a consumer is a curve in R+2 that describes all consumption choices for the consumer that can result as one varies (p1,p2). c. Construct a new Edgeworth box (with the axes extended beyond the box) that shows the offer curves for consumers A and B, restricting attention to price vectors pR++2. d. Conclude that this economy does not have a competitive equilibrium. 1. Consider an economy with two consumers, A and B. There are two goods. Suppose the utility functions are UA(c1,c2)=c1+c2,UB(c1,c2)=min{c1,c2}. The endowments are yA=[10],yB=[21] a. Show the Edgeworth box for this economy, with the indifference curves corresponding to the endowment allocation. b. Explain why it has to be the case that p1>0 and p2>0 if (p1,p2) is an equilibrium price vector. The offer curve for a consumer is a curve in R+2 that describes all consumption choices for the consumer that can result as one varies (p1,p2). c. Construct a new Edgeworth box (with the axes extended beyond the box) that shows the offer curves for consumers A and B, restricting attention to price vectors pR++2. d. Conclude that this economy does not have a competitive equilibrium
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