Look at an economy with two consumers a and b and two goods

Reference no: EM13375034

Look at an economy with two consumers, A and B and two goods X1 and x2. Let the two consumers preferences be described by the utilitufunctions:

Ua(x1,x2)=x1+2*x2 and Ub(x1,x2)=min{x1,2*x2}

The two users initial endowment is given by:Wa=(12,0)Wb=(0,12)

1) Draw en Edgeworth box and illustrate . Initial endowement allocation, an indifferenscurve for each consumer and the contract curve.

2) In equilibrium in this economi, what must the relative priceratio necsecarily has to be?

3) Show the two consumers budgetconstrains.

I equilibrium consumer B must consume in one of his kink at the indifferencecurve.

4) in wich ratio will consumer B consume x1 amd x2?

In equilibrium it must for both markets apply that demand=supply. Lad x1^A and x1^Bdenote consumer A´srespectively B`s consumption of good 1. Thus xi^A+xi^B=12, i=1,2

5) Combine this with your answer in (4) and use A´s budgetrestictions in order to fin equilibrium.

Reference no: EM13375034

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