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problemset7 - Due June 1 2010 Economics 100B Microeconomics...

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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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