2. Suppose we have an economy composed of two individuals, Mazen and Ziad. The consumption set for each individual is ma

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2 Suppose We Have An Economy Composed Of Two Individuals Mazen And Ziad The Consumption Set For Each Individual Is Ma 1 (39.19 KiB) Viewed 62 times

2. Suppose we have an economy composed of two individuals, Mazen and Ziad. The consumption set for each individual is made up of two goods: brownies (B) and coffee (C). The preferences of Mazen and Ziad are represented by the following utility functions: Mazen: U(B,C) = Bict Ziad: U(B,C) = Min{B.C} Let PB and pc be the prices of brownies and coffee, respectively. Now suppose Mazen is endowed with the following vector of goods en = (B=5, C = 5) and Ziad is endowed with ez = (B = 7.C = 5). (a) Compute the utility of Mazen and Ziad if they were not allowed to trade. (b) Set up the utility maximization problem for Mazen and Ziad. (c) Derive the individual Marshallian demand functions. (d) Compute the general equilibrium price if Mazen and Ziad are able to trade. How many units of B and C are traded in the market? (e) Represent this exchange economy using an Edgeworth box. You need to clearly show the indifference curves of both consumers, the initial endowment bundles, and the equilibrium of this exchange economy. Using the graph, explain how trade is better than autarky for both consumers.