Suppose we have a pure exchange economy with typei E 1,2 households. The prefere

Question

Suppose we have a pure exchange economy with typei E 1,2 households. The preferences for type is 0o () In (c) with B E (0, 1). Let pt denote price, in units of period 0 consumption (numeraire), of one unit of consumption to be delivered in period t. Part (a) Suppose the endowments streams ee are given by el 3, Vt Define the competitive equilibrium of this cconomy and then solve for all the endogenous vari- ables. Will there be any future trades? Why? Part (b) Suppose the endowments streams e- {e)-o are given by 2 (1 if t is cven if t is odd if t is even if t is odd 2 (1+) where y >0 indicates the exogenous growth rate of this economy Define the competitive equilibrium of this economy and then solve for all the endogenous vari- ables

Explanation / Answer

We have written a fundamentally different text for principles of economics, based on two

premises:

1. Students are motivated to study economics if they see that it relates to their own lives.

2. Students learn best from an inductive approach, in which they are first confronted with

a question and then led through the process of how to answer that question.

The intended audience of the textbook is first-year undergraduates taking courses on the

principles of macroeconomics and microeconomics. Many may never take another economics

course. We aim to increase their economic literacy both by developing their aptitude for

economic thinking and by presenting key insights about economics that every educated

individual should know.

Applications ahead of Theory

We present all the theory that is standard in books on the principles of

economics. But by beginning with applications, we also show students why this

theory is needed.

We take the kind of material that other authors put in “applications boxes” and place it at the

heart of our book. Each chapter is built around a particular business or policy application,

such as (for microeconomics) minimum wages, stock exchanges, and auctions, and (for

macroeconomics) social security, globalization, and the wealth and poverty of nations.

Why take this approach? Traditional courses focus too much on abstract theory relative to the

interests and capabilities of the average undergraduate. Students are rarely engaged, and the

formal theory is never integrated into the way students think about economic issues. We

provide students with a vehicle to understand the structure of economics, andwe train them

how to use this structure.

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