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Suppose there are two consumers, A and B. The utility functions of each consumer are given...

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 = 2XY; MUY = X2 For consumer B: MUX = Y; MUY = X The initial endowments are: A: X = 120; Y = 6 B: X = 30; Y = 14 a) (20 points) Suppose the price of Y, PY = 1. Calculate the price of X, PX that will lead to a competitive equilibrium. b) (8 points) 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) (4 points) What is the marginal rate of substitution for consumer A at the competitive equilibrium?

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Answer- For two person economy having endownment of good 1 & good 2 , we can explain market equilibrium by writing their gross demand functions. In equilibrium total demand for each good should be equal to total supply.

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