Explain how equilibrium is achieved

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Reference no: EM13964468

F is a small society that produces and consumes just two goods: tequila and medicine. The price of tequila and medicine are both $1 per unit, but the marginal utility of medicine is less than the marginal utility of tequila. All consumers have identical Cobb-Douglass preferences.

1. Explain how equilibrium is achieved. Provide a graph with your explanation. Place medicine on the horizontal axis and tequila on the vertical axis. Clearly label the budget line and the indifference curves before and in equilibrium.

Reference no: EM13964468

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