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Unformatted text preview: and Y. Suppose the total
quantities of each good are 100 units. Each consumer has CobbDouglas preferences given
by:
U (X,Y) = XY
What is the shape of the contract curve, i.e. derive the equation? How does the contract curve
change if consumer one has the utility function
2
U (X,Y) = X Y
while the other consumer’s preferences are as before? Again, derive the equation for the contract curve. 4. Consider a twotrader/twogood exchange economy in equilibrium. If the endowment point
moves to the north east, i.e. the endowment quantities to one of the consumers increase, can
we determine the direction in which the equilibrium quantities will change? Demonstrate
your answer with a graph including the relevant indifference curves, contract curve and price
line. 5. Sarah and Andrew are two traders in a pure exchange economic with two goods, Bikes (B)
and Computers ( C ). Sarah's preferences are described by the CobbDouglas Utility function:
1/3
2/3
U S = BS C S
Andrew's preferences are given by:
1/2
U A = B A½ C A
Assume the price of Bikes is 1 and the pric...
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This note was uploaded on 01/16/2012 for the course ECON W3211 taught by Professor Elmes during the Fall '09 term at Columbia.
 Fall '09
 Elmes
 Economics, Microeconomics

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