Consider a two-consumer exchange economy with uncertainty. Consumers can buy and sell claims on consumptionx_iin statei= 1,2 at unit pricep_i, which is realized with probabilityq_i. There are 2 units of the consumption good in state 1, which are entirely owned by consumerA, and 2 units of the consumption good in period 2, which are entirely owned by consumerB. ConsumerAis risk-averse: her utility over money consequencesx^Aisu^A(x^A) = lnx^A. ConsumerBis risk-neutral: her utility over money consequencesx^Bisu^B(x^B) =x^B.

(a)Illustrate this economy in an Edgeworth box.

(b)Is there idiosyncratic risk in this economy?

(c)Is there aggregate risk in this economy?

(d)Derive a competitive equilibrium for this economy.

(e)Describe the consumers' equilibrium insurance plans in this economy.