Asked by
George Apessos
on Dec 01, 2024
Verified
Colette and Hans both consume the same goods in a pure exchange economy.Colette is originally endowed with 15 units of good 1 and 12 units of good 2.Hans is originally endowed with 97 units of good 1 and 4 units of good 2.They both have the utility function U(x1, x2) = x1/31x2/32.If we let good 1 be the numeraire, so that p1 = $1, then what will be the equilibrium price of good 2?
A) $14
B) $28
C) $2
D) $1
E) $7
Pure Exchange Economy
An economic model where all agents are consumers, and the only economic activities are the consumption and exchange of goods, with no production.
Numeraire
A standard unit of account in which prices and values are expressed; it serves as a measure for comparing the worth of goods or services.
Endowed
Provided with a quality, ability, or asset.
- Grasp the essence of utility functions and their significance in influencing consumer actions.
- Gain insight into how marginal utilities are related to price ratios within the context of market equilibrium.
Verified Answer
BG
Learning Objectives
- Grasp the essence of utility functions and their significance in influencing consumer actions.
- Gain insight into how marginal utilities are related to price ratios within the context of market equilibrium.