Suppose there are two consumers, A and B.

| November 24, 2016

NEED Done by 9:45am

Suppose there are two consumers, A and B.

The utility functions of each consumer are given by:

UA = X2Y

UB = X*Y

Therefore:

� Consumer A: MUX = 2XY; MUY = X2

� 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 good Y, Py=1. Calculate the price of good 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?

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