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Question 1 Consider an economy in which two people, Dinah Mojo and Dynamo Joe, exchange two goods, ale and bread. Let p be the price
Question 1 Consider an economy in which two people, Dinah Mojo and Dynamo Joe, exchange two goods, ale and bread. Let p be the price of ale measured in bread. a) Dinah's utility function is UD = ( ap) / + by where ap and by are her consumption of ale and bread, respectively. She is endowed with 10 loaves of bread but no ale. Find i) Dinah's budget constraint ii) her best attainable commodity bundle iii) her excess demand for ale b) Joe's utility function is UJ = (a])1/2 + bj where ay and by are his consumption of ale and bread, respectively. Joe has 18 pints of ale but no bread. Find i) Joe's budget constraint ii) his best attainable commodity bundle ifi) his excess demand for ale c) Let p be the price of ale measured in bread. Find the market-clearing value of p. Find the quantity of each good traded, and find each person's actual consumption of ale and bread. Question 2 There are two consumers and two goods in an exchange economy. The preferences of these two consumers are given by: u (x1; Xq) = 3x1 + *2 u- (x1: X) ) = min (x1; 2x2) The endowments are given by el = (10, 6) and e? = (8, 18) a) Find all Pareto-efficient allocations. b) Find the Walrasian equilibrium. c) Find the transfers (T, , T, ) such that both consumers consume the same quantity of the first good in the Walrasian equilibrium
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