Asked by Kalin Williams on May 24, 2024
Verified
Astrid's utility function is U(HA, CA) HACA.Birger's utility function is minHB, CB.If Astrid's initial endowment is no cheese and 13 units of herring and if Birger's initial endowments are 12 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, demand equals supply in the herring market.This implies that
A) 12/(p 1) 6.50 13.
B) 12/13 p.
C) 13/12 p.
D) 12/p 13/2p 13.
E) min13, 12 p.
Competitive Equilibrium
A state in a market where supply equals demand, and no participant has the ability to influence prices.
Demand Equals Supply
An economic condition where the quantity demanded by consumers matches the quantity supplied by producers, leading to market equilibrium.
Numeraire
A standard unit of measurement in economics used to represent prices or values of other goods in terms of this unit.
- Examine the competitive balance across various market environments.
- Determine equilibria by mathematically manipulating utility functions and original endowments.
Verified Answer
HT
Himanshika tagoreMay 29, 2024
Final Answer :
A
Explanation :
The correct choice is based on the equilibrium condition where demand equals supply in the herring market. Given Astrid's and Birger's utility functions and initial endowments, the equilibrium must ensure that the total amount of herring demanded by both individuals equals the total amount supplied (13 units, as per Astrid's endowment). Choice A mathematically represents this equilibrium condition, taking into account the competitive equilibrium price p of herring, with cheese as the numeraire.
Learning Objectives
- Examine the competitive balance across various market environments.
- Determine equilibria by mathematically manipulating utility functions and original endowments.