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Question 4 Consider an exchange economy with two agents, 1 and 2, and two goods, apples and bananas. The agents' preferences are represented by the
Question 4 Consider an exchange economy with two agents, 1 and 2, and two goods, apples and bananas. The agents' preferences are represented by the utility functions H1lx1.J-'1) 2351 + 111(1 +3'1), \"2(332J'2) = x2 + 2ln(1 +J'2): where 1n stands for the natural logarithm and, for E = 1, 2, x,- denotes agent is consumption of apples and y,- dcnotes agent i's consumption of bananas. Before trade, agent 1 owns III} apples and CI bananas while agent 2 owns II] apples and III} bananas. {a} Describe all the efcient [i.e., Pareto optimal) allocations of this exchange economy. Recall that not all agents need consume a strictly positive quantity of all goods. {b} Compute the competitive equilibrium of this exchange economy. Without loss of generality, normalize the unit price of apples to l, and denote the unit price of bananas by p. What is the equilibrium price of bananas? What are the agents' equilibrium eonsumptions of apples and bananas?I
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