Please answer part ii only. Consider an economy with two goods t = 1, 2. Whenever an individual consumes ri units of good 1 andT2 units of good 2, their utility is given byu(x1, 12) = Inx1+ 5 In x2,where d is a parameter taking values 0 < 8 < 1.(i) How does the parameter ð affect the marginal rate of substitution between goods 1 and 2? Explainintuitively how does the relative preference for goods 1 and 2 change as the parameter ổ increases. Consider an exchange economy with two consumers, A and B, whose utilities are given as above. How-ever, the parameter ð is lower for consumer A than for consumer B, i.e., we have 8ª < 8B. Consumer Ais endowed with 2 units of good 1, but has no endowment of good 2. Consumer B has no endowment ofgood 1, but has 2 units of good 2. In the remainder of this question, let p denote the price of good 1 andthe price of good 2 be normalised to 1.(ii) Find the competitive equilibrium price p and the equilibrium allocation expressed as a function ofthe parameters &A and 85. Who is consuming more of good 1 and who consumes more of good 2?Interpret your results by referring to your answer in part (i).

In the study of microeconomics, general equilibrium has been defined as every marketplace reaching…

Consider an exchange economy with two consumers, A and B, whose utilities are given as above. How- ever, the parameter d is lower for consumer A than for consumer B, i.e., we have ª ≤ 6³. Consumer A is endowed with 2 units of good 1, but has no endowment of good 2. Consumer B has no endowment of good 1, but has 2 units of good 2. In the remainder of this question, let p denote the price of good 1 and the price of good 2 be normalised to 1. (ii) Find the competitive equilibrium price p and the equilibrium allocation expressed as a function of the parameters 84 and 6B. Who is consuming more of good 1 and who consumes more of good 2? Interpret your results by referring to your answer in part (i).

Consider an exchange economy with two consumers, A and B, whose utilities are given as above. How- ever, the parameter d is lower for consumer A than for consumer B, i.e., we have ª ≤ 6³. Consumer A is endowed with 2 units of good 1, but has no endowment of good 2. Consumer B has no endowment of good 1, but has 2 units of good 2. In the remainder of this question, let p denote the price of good 1 and the price of good 2 be normalised to 1. (ii) Find the competitive equilibrium price p and the equilibrium allocation expressed as a function of the parameters 84 and 6B. Who is consuming more of good 1 and who consumes more of good 2? Interpret your results by referring to your answer in part (i).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.5P

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