Pennsylvania State University - ECON302 Quiz 7

Econ 302 Quiz 7 McLeod

Name ______________________________ ID # ____________________________

1. Suppose there are two consumers, A and B.

The utility functions of each consumer are given by:

UA(X,Y) = X2Y

UB(X,Y) = X*Y

Therefore:

• For consumer A: MUX = MUY =

• For consumer B: MUX = MUY

The initial endowments are:

A: X = 70 Y = 16

B: X = 80; Y = 4

a) Suppose the price of y, PY = 1. Calculate the price of X, PX that will lead to equilibrium.

b) How much of each good does each consumer demand in equilibrium?

Consumer A’s Demand for X:

Consumer A’s Demand for Y:

Consumer B’s demand for X:

Consumer B’s demand for Y:

c) What is the marginal rate of substitution for consumer A at the competitive equilibrium?