Question
Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = X2Y UB(X,Y) = X*Y Therefore: For
Suppose there are two consumers, A and B.
The utility functions of each consumer are given by:
UA(X,Y) = X2Y
UB(X,Y) = X*Y
Therefore:
- For consumer A: MUX= 2XY; MUY= X2
- For consumer B: MUX= Y; MUY= X
The initial endowments are:
A: X = 120; Y = 6
B: X = 30; Y = 14
a)(20 points) Suppose the price of Y, PY= 1.Calculate the price of X, PXthat will lead to a competitive equilibrium.
b) (8 points) How much of each good does each consumer demand in equilibrium?
Consumer A's Demand for X:
Consumer A's Demand for Y
Consumer B's demand for X
Consumer B's demand for Y
c) (4 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?
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