= 1. (25 point] Consider an exchange economy with two consumers, Angela (A) and Billy (B), and two goods, coconuts (C) a
Posted: Sun May 08, 2022 9:17 am
- 1 25 Point Consider An Exchange Economy With Two Consumers Angela A And Billy B And Two Goods Coconuts C A 1 (208.59 KiB) Viewed 39 times
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= 1. (25 point] Consider an exchange economy with two consumers, Angela (A) and Billy (B), and two goods, coconuts (C) and donuts (D). Angela's utility is UA = C95 D95. Billy's utility function is Us = 268 +DB. Angela's endowments are Wac = 6 and WAD = 8, and Billy's endowments are wsc = WBD = 4. a. Draw an Edgeworth box diagram and mark the endowment point (plot D on the vertical axis and C on the horizontal axis, and use the lower left corner of the diagram as the origin for Angela). [3 points) b. What is Angela's utility at the endowment point (to 4 decimal places)? What is Billy's utility at the endowment point? [1 point] c. What is Angela's budget constraint as a function of po Po, Wac, and WAD? [2 points) d. What is Angela's demand function for coconuts as a function of pc PD, WAC and Wad. What is Angela's demand function for donuts as a function of pc, Po, Wac, and WAD. e. Let po = 1; that is, let po be the numeraire. What is the value of p in the competitive (trading) equilibrium? [4 points) f. In the competitive equilibrium, how many coconuts does Angela consumer? How many donuts does Angela consume? What is Angela's utility (to 4 decimal places)? (3 points] g. In the competitive equilibrium, how many coconuts does Billy consumer? How many donuts does Billy consume? What is Billy's utility? [3 points) h. A central planner wants to increase Billy's utility to 14 in the competitive equilibrium. How many coconuts should the central planner take from Angela and give to Billy to achieve this outcome? [3 points)