UNIVERSITY OF SOUTH FLORIDA Department of Economics Spring 2009 Michael LoewyECO 6206 Problem Set #10due 4-23-091. 8 points Consider the following alternate version of the three-types-of-agent medium of exchange model. Suppose here that type I consumes good 1, produces good 3; type II consumes good 2, produces good 1; and type III consumes good 3, produces good 2. You may assume that there are equal numbers of each type of agent. For each agent, assume that storage costs can be ranked with storage cost of good 1 < storage cost of good 2 < storage cost of good 3. a. Consider a fundamental equilibrium where each agent only stores a lower cost good than the one that s/he produces. Show graphically what trades arise in equilibrium and what good(s) serve(s) as commodity money. b. Consider next a speculative equilibrium where agents may store a good other than the lower cost good that is obtainable in either production or trade. Show graphically what trades arise in equilibrium and what good(s) serve(s) as commodity money.
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Department of Economics, storage cost, Michael Loewy