Suppose there are two consumers, A and B, and two goods, X and Y. The consumers have
Question:
Suppose there are two consumers, A and B, and two goods, X and Y. The consumers have the following initial endowments and utility functions:
WA(X)=9, WB(X)=3, WA(Y)=2, WB(Y)=8, UA(X,Y)= 2X+3Y, UB(X,Y)= X^(2/3)*Y^(1/3)
a) Suppose the price of good Y is equal to 1.Calculate the price of good X that will lead to a competitive equilibrium.Hint:Would consumer B ever be willing to have 0 units of either good?At what price is consumer A indifferent between consuming bundles consisting of a mix of X and Y?
b) Using a clearly and accurately labeled Edgeworth box, illustrate:
- the initial endowment, labeled "W"
- the general equilibrium point, labeled "D" - be sure to give its exact coordinates somewhere (not just a big dot in the box).
- both consumers' indifference curve through the initial allocation
- the budget constraint, the contract curve, and the core.
c)For the situation above, determine for each market if there is excess demand, excess supply, or the market is in equilibrium. If there is excess demand or excess supply, determine the excess quantity.
Please show work