ps7_fall11

# The initial endowments are b a 10 bs 20 c a 20 and c

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Unformatted text preview: e of computers is p. The initial endowments are B A = 10, BS = 20, C A = 20 and C S = 10. Solve for the competitive equilibrium prices (relative prices) and quantities. 6. Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F * C. The price of clothing is always \$1. If the price of food is \$3, does a competitive equilibrium exist? If not, what will happen to the price of food? 7. Two individuals, Fred and Helen, in an economy with no production, each have the utility function U 10XY. Prices of both X and Y are set at \$1. Initial endowments for Fred are 10 units of X and 6 units of Y. Helen has 8 units of X and 12 units of Y. Show that this initial endowment is not on the contract curve. 8. Suppose Jenna and Karen both regard peanut butter and jelly as perfect complements at a 1:1 ratio. Show using an Edgeworth box diagram that if Jenna receives 10 peanut bu...
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