There are200identical consumers, each with preferencesu(x, y) =x+ln (y)wherexdenotes consumption of lentils andydenotes waffles.100consumers each owns10units of lentils and100consumers each own20units of waffles. Let the price of lentils be1. In the following, focus on interior solutions.

1.(a)Derive the demand function for waffles and find the general equilibrium price of waffles.

2.(b)How do the price of waffles and the distribution of income depend on?

3.(c)Is there a case for government intervention to make a transfer from owners of waffles to owners of lentils ifincreases? Draw on the course reading in formulating your answer.