Economics 100BDueJune 1, 2010MicroeconomicsSpring 2010James RauchPROBLEM SET 7: General Competitive Equilibrium with four marketsConsider an economy with the following technology for producing X and Y: each unit of Xrequires 6 units of capital input and 3 units of labor input, and each unit of Y requires 3 units ofcapital input and 6 units of labor input. The economy is endowed with 75 units of capital and 60units of labor.1. Graph the economy’s production possibility frontier, placing X on the horizontal axis and Y onthe vertical axis. (Hint: you will need to plot two linear resource constraints.)xy2. Graph the economy’s relative supply curve, placing X'Y on the horizontal axis and p'p onthe vertical axis. The representative consumer has preferences given by U(X,Y) = X Y.2xy3. Find relative demand X'Yas a function of relative price p'p .DD4. Show on your graph from problem 2. the intersection of relative demand with relative supplyand the equilibrium relative price and relative quantity transacted.
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