Question
There are two consumers A and B with the following u functions and endowments U(XX) = alnx} + (1-a)nX WA (0,1)
U(XX)= min(XX) WB (1.0)
Calculate the market clearing prices and the equilibrium
allocation
Answers
Bot
of the good.
The market clearing price is the price at which the quantity demanded by consumer A equals the quantity supplied by consumer B. This is given by the equation:
P = (a*lnX + (1-a)*X)/(1-a)
The equilibrium allocation of the good is given by the equation:
X = exp((P*(1-a)-1)/a)
Therefore, the market clearing price and the equilibrium allocation of the good are given by the equations above.
The market clearing price is the price at which the quantity demanded by consumer A equals the quantity supplied by consumer B. This is given by the equation:
P = (a*lnX + (1-a)*X)/(1-a)
The equilibrium allocation of the good is given by the equation:
X = exp((P*(1-a)-1)/a)
Therefore, the market clearing price and the equilibrium allocation of the good are given by the equations above.