Compute equilibrium marginal rate of substitution

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Reference no: EM131391982

Let Joe and Mojo have preferences a 0.25 i b 0.75 i . Assume each agent has an equal endowment of ale and bread of five units. (a) Calculate Joe’s excess demand as a function of the price of ale. (b) Compute the equilibrium by setting setting the excess demand functions equal to zero. Could you have taken a short cut? (c) Compute Joe’s equilibrium Marginal Rate of Substitution. (d) What happens to the equilibrium if Joe has instead 15 units of ale?

Reference no: EM131391982

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