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Suppose the utility functions for consumers A and B are given by u A (x 1 ,x 2 )=x 1 x 2 u B (x
Suppose the utility functions for consumers A and B are given by
uA(x1,x2)=x1x2
uB(x1,x2)=x1+logx2
and their endowments are
A= (1A,2B)
B= (1B,2B)
Denote market prices of good 1 and good 2 byp1andp2,respectively.
(a) Find their Marshallian demands.
(b) Find equilibrium prices in this market. [Hint: Use Walras' law and pick your choice of numeraire.]
(c) How does consumer B's equilibrium consumption of good 2 change if consumer A's endowment of good 1 changed, all else equal?
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