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utility/demand functions economics

 
 
Reply Sun 6 Mar, 2016 06:14 am
Let two consumers have preferences described by the utility function

u^h = log(x1^h) + log(x2^h), h=1,2.

The endowments are described as follows.

Consumer 1: 3 (Good 1), 2 (Good 2).

Consumer 2: 2 (Good 1), 3 (Good 2).

a) calculate the consumer's demand functions

b) selecting good 2 as numeraire, find the equilibrium price of good 1. Hence, find the equilibrium levels for consumption.

c) Show that the consumers' indifference currves are tangential at the equilibrium.
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