The goods in the next question are not ale and bread. To solve this question, you are going to have to evaluate the condition The price p is defined for you, but you will have to define the marginal rate of substitution for yourself. What ratio of marginal utilities should you use? You will know the answer to this question once you have defined the marginal rate of
The goods in the next question are not ale and bread. To solve this question, you are going to have to evaluate the condition
The
Pierre lives on red wine and blue cheese. His utility function is.
where w is his consumption of wine and c is his consumption of cheese. He is endowed with 4 kilograms of cheese and 8 bottles of wine. He can trade these commodities in a marketplace, where the price of red wine, measured in blue cheese, is p.
a) Find Pierre’s optimal consumption of wine and cheese at any given price p.
b) Find the quantity of wine that Pierre would like to buy at any given price p.
c) Suppose that Pierre trades with Gabrielle, whose excess demand for wine is
Find the market-clearing price.
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