Reference no: EM132488630

Consider a simple two good, two person, pure exchange economy with divisible goods. Consider the endowments e1 = (10, 2) and e2 = (2, 10) for consumer 1 and consumer 2, respectively. Assume the utility functions as the following:

For consumer 1:

u(x1,x2) = 3x1 + 5x2 

For consumer 2:

u(x1,x2) = (x1)^1/3(x2)^1/3

(a) Solve the consumer problem for consumer 1. Find the Marshallian demands for x1 and x2.

(b) Solve the consumer problem for consumer 2. Find the Marshallian demands for x1 and x2.

(c) Write down the conditions for (x1*,x2*,p*) to be an equilibrium in this economy.

(d) Find (x1*, x2*, p*), the equilibrium price and allocations for this economy.