Answer to problems 1, 2, 3

1.) Person A and B both have Cobb-Douglas preferences, uA = (x))2/5 . (x?)3/5 and up = C . C . Their endowments are WA = (0, 2) and wg = (4, 0). Find their demand functions and use market clearing to derive equilibrium prices. 2.) Plug equilibrium prices found in question 1.) back into demand functions to find the equilibrium quantity demanded. 3.) Solve for the contract curve for the setting described in question 1.)