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problemset6 - Due June 1 2010 Economics 100B Microeconomics...

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Economics 100B Due June 1, 2010 Microeconomics Spring 2010 James Rauch PROBLEM SET 6: General Equilibrium and Economic Welfare with Three Markets Consider an economy populated by a representative consumer with preferences given by U(X,Y) = XY and labor endowment = 300. Perfectly competitive producers of x X have technology X = 2L and perfectly competitive producers of Y have technology y Y = 4L . x y 1. Find relative demand X ' Y as a function of relative price p ' p . D D 2. Graph the relative supply curve and show its intersection with the relative demand curve that determines the equilibrium X* ' Y*. 3. Find the wage and the value of consumer income in terms of good Y. Use consumer income and the answer to problem 2 to find X* and Y*. Also find x y L* and L*. 4. Using your answers to problem 3, graph the equilibrium for this economy, showing the production possibility frontier and indifference curve.
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