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3. Consider an exchange economy with two consumers A and B, and two goods (good ] and good 2), whose preferences are given by: 19
3. Consider an exchange economy with two consumers A and B, and two goods (good ] and good 2), whose preferences are given by: 19 and their initial endowments are: eA = (10, 4) and 28 = (6, 10). (i) Find the competitive equilibrium ratio of prices ? and the equilibrium consumption by the two consumers of the two goods. Hint: You can use your results from Q1 to derive the consumers' Marahalian demands. For consumer A, a = 1 and / = 8. For B, its a = $ and ( = 1.] (ii) Find the set of Pareto-efficient allocations for this economy. Verify the first welfare theorem here i.e. the consumption allocation you found in part (i) is Pareto-efficient. (iii) Can the allocation TA = (12,6) and zy = (4, 8) be supported as a Walrasian equilibrium with transfers? If yes, find the set of endowments that will make it an equilibrium. If no, explain
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