ECON201B 2006 PS7 - Problem Set 7 Economics 201B 2nd Half -...

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Unformatted text preview: Problem Set 7 Economics 201B 2nd Half - Spring 2006 Due Thursday, 11 May in Ryan&s 5th oor mailbox 1. Consider a consumer with the following preferences and endowment: u ( x 1 ; x 2 ) = max f min f 2 x 1 ; x 2 g ; min f x 1 ; 4 x 2 gg ; ( ! 1 ; ! 2 ) = (2 + 2 &; 4 & 3 & ) ; & 2 (0 ; 1) (a) Draw the indi/erence curves for this consumer. Are this consumer&s preferences convex? (b) Now suppose we have an economy of I 2 N identical consumers with I 2 , each of which has the same preferences and endowment as the consumer described above. Find a necessary and su cient condition for & that must be satised for there to exist a Walrasian equilibrium of this economy. Show that as I increases, the set of a 2 (0 ; 1) that satisfy the condition you found increases in size. (c) Explain in a few sentences how these results relate to Theorem 5 in the (revised) Lecture Notes 12. That is, relate your above results to the fact that, in this economy, we can show that 8 a 2 (0 ; 1) , 9 p & >> and x...
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This note was uploaded on 08/01/2008 for the course ECON 201B taught by Professor Anderson during the Spring '06 term at University of California, Berkeley.

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ECON201B 2006 PS7 - Problem Set 7 Economics 201B 2nd Half -...

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