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Consider an exchange economy where Marge and Homer both have utility u(x1,x2) = 2 lnx1 lnx2. Marge is endowed with 10 units of good 1
Consider an exchange economy where Marge and Homer both have utility u(x1,x2) = 2 lnx1 lnx2. Marge is endowed with 10 units of good 1 and 0 units of good 2, while Homer is endowed with 0 units of good 1 and 10 units of good 2. (a) Describe the set of all Pareto-optimal allocations, and illustrate in an edgeworth box. (b) Find the equilibrium price ratio, considering only the market for good 1: i.e. gure out how much good 1 each of Marge and Homer want to buy (given prices), and then the price ratio that equates demand for good 1 with supply for good 1
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