Economics 100B
Due
June 1, 2010
Microeconomics
Spring 2010
James Rauch
PROBLEM SET 7:
General Competitive Equilibrium with four markets
Consider an economy with the following technology for producing X and Y:
each unit of X
requires 6 units of capital input and 3 units of labor input, and each unit of Y requires 3 units of
capital input and 6 units of labor input.
The economy is endowed with 75 units of capital and 60
units of labor.
1. Graph the economy’s production possibility frontier, placing X on the horizontal axis and Y on
the vertical axis.
(
Hint
:
you will need to plot two linear resource constraints.)
x
y
2. Graph the economy’s relative supply curve, placing X
'
Y on the horizontal axis and p
'
p on
the vertical axis.
The representative consumer has preferences given by U(X,Y) = X Y.
2
x
y
3. Find relative demand X
'
Y
as a function of relative price p
'
p .
D
D
4. Show on your graph from problem 2. the intersection of relative demand with relative supply
and the equilibrium relative price and relative quantity transacted.
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 Spring '07
 RAUCH
 Economics, Microeconomics, Supply And Demand, representative, production possibility frontier

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