hw4 - Economics 150 Intermediate Microeconomics Spring 2008...

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Unformatted text preview: Economics 150, Intermediate Microeconomics, Spring 2008 Please put your discussion-section time and TA name on your answer. Homework 4 Due Wednesday, April 2 Suppose there are two agents, Robinson and Friday. The two have iden- tical endowments of the two goods they have to consume, bananas and coconuts, as follows: ω F b = ω R b = 1 ω F c = ω R c = c ≥ 1 , but their preferences are different. Friday likes bananas more than coconuts, and Robinson likes coconuts more than bananas. The utility function are given by (for α > 1 / 2): u F x F b ,x F c = α ln x F b + (1- α )ln x F c u R x R b ,x R c = (1- α )ln x R b + α ln x R c . We normalize the price of bananas to be equal to one, or p b = 1. 4.1 Compute the demand functions of Robinson and Friday as a function of the price for coconuts p c . 4.2 Find the competitive equilibrium price of this island economy and determine the net trading quantities, i.e., the excess demands x F b- ω F b , x R b- ω R b , x F c- ω F c and x R c...
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hw4 - Economics 150 Intermediate Microeconomics Spring 2008...

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