Re: 2009

Posted by onionknight on Jun 08, 2015; 10:38am
URL: http://discussion-forum.276.s1.nabble.com/2009-tp7597490p7597503.html

ua= (xa+2xb)2 ub=xb+yb . Indifference curves for both consumers are straight lines (one with slope 2 and one with slope 1). For competitive equilibrium, you only need to find the best bundles for each consumer at different price ratios as you would do in a single consumer case but in addition to both consumers' utility being maximized, you need to ensure market clearing. For instance, at prices 1,2, consumer 1 would be indifferent between the two goods (since the good that costs twice also gives twice the utility per unit), so he would be indifferent between all bundles he could afford. Consumer 2 would prefer to consume good 1 only, and thus he would like to trade one unit of good 2 for two units of good 1 giving a final allocation of (1,2) and (3,0). Thus p1=1 p2=2 (1,2) (3,0) is one possible competitive equilibrium. Hope this helps.