Consider a two-consumer exchange economy with uncertainty. Consumers can buy and sell claims on consumptionxiin statei= 1,2 at unit pricep_i, which is realised 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 an Edgeworth Box for this economy

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 the economy. Is insurance actuarially fair? Are the consumers ever fully insured?