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Consider an economy with two agents and two commodities. Consumers' preferences are represented by the following utility functions u1(x11,x21)=(x11)21(x21)21u2(x12,x22)=x12+x22. Consumers' initial endowments are e1=(10,2)e2=(6,4). Note:
Consider an economy with two agents and two commodities. Consumers' preferences are represented by the following utility functions u1(x11,x21)=(x11)21(x21)21u2(x12,x22)=x12+x22. Consumers' initial endowments are e1=(10,2)e2=(6,4). Note: You can normalize the price of one good to 1 at any point when solving this question. )) State the utility maximization problem of each consumer. Verify that consumer 1 's Walrasian demand of good 1 is x11(p1,p2)=p15p1+p2 and derive consumer 1's Walrasian demand of the second good. Similarly, verify that consumer 2's Walrasian demand of good 1 is x12=6p1+4p2[0,6p1+4p2]0ifp1
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