Consider an exchange economy with two types of agents, A and B, and two goods,x1 and...
Consider an exchange economy with two types of agents, A and B, and two goods,x1 and x2. Preferences are given by uA(x1, x2) =x1+ ln(x2) and uB(x1, x2) = ln(x1) + ln(x2). Let ωA= (10,0) andωB= (0,20). Let p2= 1. What is p1 in a competitive equilibrium?
(a) 10 (b) 20 (c) 1/10 (d) 1/207.
(Continued from previous question) Assume the government wants to ensure that in the competitive equilibrium xB1= 5. To achieve they will redistribute endowments in the following way.ωA= (10−r,0) and ωB= (r,20) where r is the amount of good 1 taken from agent A and given to agent B before trading takes place. What value of r achieves the government’s goal?
(a) 5 (b) 4 (c) 10(d) 9
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