3. (24 total points) Suppose there are two consumers, A and B, and two goods, X

Question

3. (24 total points) Suppose there are two consumers, A and B, and two goods, X and Y. Consumer A is given an initial endowment of 2 units of good X and 3 units of good Y. Consumer B is given an initial endowment of 6 units of good X and 5 units of good Y. Consumer A's utility function is given by: And consumer B's utility function is given by Therefore, consumer A's marginal utilities for each good are given by: MUy (12)x1y-12 Also, consumer B's marginal utiliies for each good are given by: a) (8 points) Suppose the price of good Y is equal to one. Calculate the price of good X that will lead to a competitive equilibrium

Explanation / Answer

1. Price of Good Y Py= 1

then the price of Good PX= ?

Px= 1/2

2. Consumer A's demand for X = 4

   Consumer A's demand for Y = 2

   Consumer B's demand for X =4

   Consumer B's demand for Y =6

3. MRSA= MRT

     MRT = - Px/ Py

             = - 1

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