Asked by
Aviara Kisselburgh
on Dec 01, 2024
Verified
Teresa and Jean-Pierre both consume the same goods in a pure exchange economy.Teresa is originally endowed with 9 units of good 1 and 6 units of good 2.Jean-Pierre is originally endowed with 91 units of good 1 and 14 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) $10
B) $20
C) $2
D) $1
E) $5
Pure Exchange Economy
An economic model where there is no production, and agents trade endowments of goods that they own initially.
Utility Function
A mathematical representation of how consumers rank different bundles of goods according to the levels of satisfaction those goods provide.
Numeraire
A standard unit of account in economics used to compare the value of goods and services.
- Comprehend the essential principles underlying competitive equilibrium and their association with price determination in pure exchange economies.
- Comprehend the theory behind utility functions and their role in shaping consumer preferences and choices.
Verified Answer
JJ
Learning Objectives
- Comprehend the essential principles underlying competitive equilibrium and their association with price determination in pure exchange economies.
- Comprehend the theory behind utility functions and their role in shaping consumer preferences and choices.