Consider a small closed economy with two consumption goods: good 1 (meat) and good 2 (berries). There are two types of agents, h and g, and they have the same preferences over consumption, represented by the utility function: u(x1, x2) = lIn ¤1 + In x2. However, there are twice as many type-h agents as type-g agents. The only factors of production are their labour. When a type-h agent chooses to spend a fraction a of his day producing meat and the rest producing berries then his output is (yf, y5) = her day producing meat and the rest producing berries then her output is (yi, y): (2a, 2(1 – a)). A type-g agent is more productive. When she chooses to spend a fraction B of (3В, 12(1 — В)). Normalise the price of one unit of berries (good 2) to 1, and let p be the price of one unit of meat (good 1). Which of the following statements is true? O a. Equilibrium price must satisfy 1 4. O d. Equilibrium price p must be equal to 1 or must be equal to 4.

Consider a small closed economy with two consumption goods: good 1 (meat) and good 2 (berries). There are two types of agents, h and g, and they have the same preferences over consumption, represented by the utility function: u(x1, x2) = lIn ¤1 + In x2. However, there are twice as many type-h agents as type-g agents. The only factors of production are their labour. When a type-h agent chooses to spend a fraction a of his day producing meat and the rest producing berries then his output is (yf, y5) = her day producing meat and the rest producing berries then her output is (yi, y): (2a, 2(1 – a)). A type-g agent is more productive. When she chooses to spend a fraction B of (3В, 12(1 — В)). Normalise the price of one unit of berries (good 2) to 1, and let p be the price of one unit of meat (good 1). Which of the following statements is true? O a. Equilibrium price must satisfy 1 4. O d. Equilibrium price p must be equal to 1 or must be equal to 4.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.9P

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