Question

# Consider a perfectly competitive market system with two goods. Every member of two groups of individuals...

Consider a perfectly competitive market system with two goods. Every member of two groups of individuals is trying to maximize his/her own utility. There are 10 people in group A, and each has the utility function U(xA,yA)=xA0.7yA0.3; and there are 5 people in group B, each has the utility function U(xB,yB)= xB + yB. Suppose that the initial endowment is that each individual in group A has 40 units of good x and 45 units of good y, and each individual in group B has 100 units of x and 110 units of y. Suppose the current market prices are Px =2, Py =1.

Unless otherwise specified, please always keep two digits after the decimal point/round your answer to the closest hundredth if needed.

1)With the current prices, the optimal consumption bundle of an individual in Group A is( ) units of x and ( ) units of y.

2)The MRS of an Individual in Group B is ( ).  With the current prices, the optimal consumption bundle of an individual in Group B is ( ) units of x and ( ) units of y.

3)With the current prices, the total (gross) quantity supplied of x in the market is ( ) units, and the total (gross) quantity demanded of x is  ( ) units.

4) Which of the following is correct? Select one:

a. The market is currently in equilibrium.

b. The market is not in equilibrium, and Px /Py will increase to bring the market into equilibrium.

c. The market is not in equilibrium, and Px /Py will decrease to bring the market into equilibrium.

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