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Problem 2 Suppose there are two agents, Kate and Sarah, who have preferences over tea (t) and biscuits (b): uk (t, b) = log(t) +
Problem 2 Suppose there are two agents, Kate and Sarah, who have preferences over tea (t) and biscuits (b): uk (t, b) = log(t) + 2log(b) us(t, b) = log(t) + 3b Suppose that Kate's endowment, ek(t, b), is 2 units of tea and 6 biscuits. Sarah's endowment, es(t, b), is 8 units of tea and 2 biscuits. a) Derive the individual excess demand functions for each person b) What is the aggregate excess demand function? c) Compute a Walrasian equilibrium price and allocation d) Verify that this equilibrium allocation is Pareto efficient
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