(2) Suppose persons A and B have Cobb-Douglas preferences yielding the following individualdemand functions:МАof (P1, P2, MA) :МАx (P1, P2, MA) = (1 a)= aPiP2MB= bPiMB(P1, P2, MB) = (1 – )xf (P1, P2, MB)P2Incomes are given by the market value of endowments:MA = P1wf + PzwMB = P1wf + P2wB (a) Verify that aggregate net/excess demand functions z1 (P1, P2) and z2(P1, P2) satisfy Walra'slaw, i.e., p121 (P1, P2) + P2z2(P1, P2) = 0 for all p1 and p2.

Walrus law states that : p1z1p1,p2 + p2z2p1,p2 = 0 That is, value of aggregate excess demand is…

Suppose persons A and B have Cobb-Douglas preferences yielding the following individual demand functions: МА rf (P1, P2, MA) МА r (P1, P2, MA) = (1 a) = a Pi MB b- P1 P2 P1; P2, MB) MB (P1, P2, MB) = (1 – ) P2 Incomes are given by the market value of endowments: MA = P1wf + Pzw B MR = Pjw + Pzwa

Suppose persons A and B have Cobb-Douglas preferences yielding the following individual demand functions: МА rf (P1, P2, MA) МА r (P1, P2, MA) = (1 a) = a Pi MB b- P1 P2 P1; P2, MB) MB (P1, P2, MB) = (1 – ) P2 Incomes are given by the market value of endowments: MA = P1wf + Pzw B MR = Pjw + Pzwa

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 15.2IP

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