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5. Suppose that there are two consumption goods in the economy: A and B.A is the numeraire consumption good and hence the price of good

image text in transcribed 5. Suppose that there are two consumption goods in the economy: A and B.A is the numeraire consumption good and hence the price of good B is in units of good A. The time-zero price of B is PB0, and the price of good B at time one in state s will be PBs. At time 0 , if the individual has C0, "consumption units" from endowment less investment, the individual can choose to buy some of goods A and B to maximize utility. Similarly, at time 1 , in states, if the individual has Cs "consumption units" from endowment and investment returns, the individual can choose to buy goods A and B to maximize utility U(cA,cB)=cAacBb,a,b>0,a+b

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