Consumer demand in equilibrium

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Suppose there are two consumers, A and B. 

The utility functions of each consumer are given by:

UA(X,Y) = X2Y

UB(X,Y) = X*Y

Therefore:

  • For consumer A: MUX = 2XY; MUY = X2
  •  For consumer B: MUX = Y; MUY = X

The initial endowments are: 

A: X = 120; Y = 6

B: X = 30; Y = 14

a) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium.

b) How much of each good does each consumer demand in equilibrium?

Consumer A's Demand for X:

Consumer A's Demand for Y

Consumer B's demand for X

Consumer B's demand for Y

c) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

Reference no: EM132484576

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