1. Rice (R) and Beans (B) are complements. In the short run the quantities of rice and beans are assumed fixed at 400kgs and 200kgs respectively. Suppose their demand functions are given as

PR=1000-2QR-4QB

PB=2000-4QR-6QB

i)What are the equilibrium prices of Rice and Beans? (2 Marks)

ii)Analyze the effect on the markets for beans and rice of water shortage that causes a reduction in quantity supplied of rice using general equilibrium analysis and taking into account feedback effects (8 Marks)

2.Explain why the marginal rate of transformation of one good for another is equal to the ratio of the marginal costs of producing the 2 goods (3 Marks)

3.Efficient doesn't necessarily mean equitable, discuss with reference to the Edgeworth box (3 Marks)

4.The Marginal rate of substitution of food for clothing (rate at which consumers reduce clothing to increase food by 1 unit) is 4 while the marginal rate of transformation of food for clothing (rate at which producers reduce clothing production to increase food production by 1 unit) is . Which market has excess demand? Which market has excess supply? Graphically show how equilibrium is restored (4 Marks)