Two individuals (A and B) live on an island where they consume coconuts (good x) and bananas (good y) for survival. A owns the coconut producing part of the island and B owns the banana part. Their utility functions and endowments are given by UA (CA, YA) = CA+YA +min {A, YA}, (w, w) = (10,0) UB (TB₁YB) = TB + YB + min {TB, YB}, (ww) = (0,12) Assume that the price of coconuts is p and that of bananas is 1, so relative prices are denoted by p. 1. What are their respective budget constraints? 2. What are their individual demand functions? (Hint: you have to consider multiple cases for the value of p) 3. The individuals trade their endowments with each other. What is the competitive equilibrium price

Two individuals (A and B) live on an island where they consume coconuts (good x) and bananas (good y) for survival. A owns the coconut producing part of the island and B owns the banana part. Their utility functions and endowments are given by UA (CA, YA) = CA+YA +min {A, YA}, (w, w) = (10,0) UB (TB₁YB) = TB + YB + min {TB, YB}, (ww) = (0,12) Assume that the price of coconuts is p and that of bananas is 1, so relative prices are denoted by p. 1. What are their respective budget constraints? 2. What are their individual demand functions? (Hint: you have to consider multiple cases for the value of p) 3. The individuals trade their endowments with each other. What is the competitive equilibrium price

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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