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Consider a small closed economy with two consumption goods: good 1 (meat) and good 2 (berries). There are two types of agents, h and g,
Consider a small closed economy with two consumption goods: good 1 (meat) and good 2 (berries). There are two types of agents, h and g, and they have the same preferences over consumption, represented by the utility function: u(1, X2) = In x1 + In x2. However, there are twice as many type-h agents as type-g agents. The only factors of production are their labour. When a type-h agent chooses to spend a fraction a of his day producing meat and the rest producing berries then his output is (yr, y2 ) = (20, 2(1 - a)). Atype-g agent is more productive. When she chooses to spend a fraction S of her day producing meat and the rest producing berries then her output is (yi, y?) = (3B, 12(1 - B)). Normalise the price of one unit of berries (good 2) to 1, and let p be the price of one unit of meat (good 1).O a. Given equilibrium price p, each agent of type h demands one unit of good 1 (meat) and p units of good 2 (berries). Each agent of type g demands 6/p units of good 1 (meat) and 6 units of good 2 (berries). O b. Given equilibrium price p, each agent of type h demands 1/p unit of good 1 (meat) and 1 units of good 2 (berries). Each agent of type g demands 6 units of good 1 (meat) and 6/p units of good 2 (berries). O c. Given equilibrium price p, each agent of type h demands one unit of good 1 (meat) and one units of good 2 (berries). Each agent of type g demands six units of good 1 (meat) and six units of good 2 (berries). O d. Given equilibrium price p, each agent of type h demands 6/p units of good 1 (meat) and 6 units of good 2 (berries). Each agent of type g demands one unit of good 1 (meat) and p units of good 2 (berries)
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