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Unformatted text preview: Free-response – 21 out of 50 pts. (2 qns., 10 pts. each + 1) Answer these questions in your blue-book. Show your work and intermediate steps for partial credit. If you cannot complete part of the problem, e.g. if you get stuck on some algebra, you may still earn partial credit for explaining intuitively how you would solve if you were not stuck. You can expect to see fractions in your answers. Your score will only be based on the marks in your blue-book. You will not receive any credit for anything written on your exam paper. You will receive 1 point for correctly writing your name, perm number, version (A,B,C, or D), and TA’s name on your blue-book. 1. Consider an exchange economy consisting of two people, A and B , endowed with two goods, 1 and 2. Each person is initially endowed with 5 of each good. Their preferences are given by U A ( x 1 ,x 2 ) = x 2 1 x 2 and U B ( x 1 ,x 2 ) = x 1 x 2 2 . This question asks you to assume that p 2 = 1, then find the competitive equilibrium allocations and...
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- Spring '08
- Economics, xa, Economic equilibrium, Marginal private benefit, marginal private cost