Suppose the total quantities of each good are 100

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Unformatted text preview: and Y. Suppose the total quantities of each good are 100 units. Each consumer has Cobb-Douglas 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 two-trader/two-good 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 Cobb-Douglas 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.

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