Need help. Avi (A) and Brad (B) live in an exchange economy where they consumecakes, r, and litres of beer, y. Both of their preferences are given by:u = a ln(x) + (1 – a) In(z)where 0 < a < 1. There are a total of n cakes and Bn litres of beer in the economy,where 3 > 0.a. Assuming Py =1 and letting p = p, show that there will be a constant equilibriumprice, p"(a, 3), regardless of the initial distribution of r and y between Avi andBrad. What is this price?b. Consider a beer-heavy economy in which n 10, a = 0.2 and B = 8. SupposeAvi starts with all the beer, and Brad starts with all the cake. What will be thepost-trade equilibrium? Who trades how much for what? Show the situation onan Edgeworth-box diagram with post-trade indifference curves. (Your diagramdoes not have to be 'to scale'.)

There are two individuals, Avi and Brad, who live in an exchange economy where they consume cakes,…

Avi (A) and Brad (B) live in an exchange economy where they consume cakes, z, and litres of beer, y. Both of their preferences are given by: u=aln(x) + (1-a) In(y) where 0< a < 1. There are a total of n cakes and 3n litres of beer in the economy, where 3 > 0. a. Assuming Py = 1 and letting pe=p, show that there will be a constant equilibrium price, p* (a, 3), regardless of the initial distribution of a and y between Avi and Brad. What is this price? b. Consider a beer-heavy economy in which n = 10, a = 0.2 and 3= 8. Suppose Avi starts with all the beer, and Brad starts with all the cake. What will be the post-trade equilibrium? Who trades how much for what? Show the situation on an Edgeworth-box diagram with post-trade indifference curves. (Your diagram. does not have to be 'to scale'.)

Avi (A) and Brad (B) live in an exchange economy where they consume cakes, z, and litres of beer, y. Both of their preferences are given by: u=aln(x) + (1-a) In(y) where 0< a < 1. There are a total of n cakes and 3n litres of beer in the economy, where 3 > 0. a. Assuming Py = 1 and letting pe=p, show that there will be a constant equilibrium price, p* (a, 3), regardless of the initial distribution of a and y between Avi and Brad. What is this price? b. Consider a beer-heavy economy in which n = 10, a = 0.2 and 3= 8. Suppose Avi starts with all the beer, and Brad starts with all the cake. What will be the post-trade equilibrium? Who trades how much for what? Show the situation on an Edgeworth-box diagram with post-trade indifference curves. (Your diagram. does not have to be 'to scale'.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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