# Edgeworth and Walras' law

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#1
So I have this assignment I'm having a hard time with. Any help would be appreciated.

An economy with consumer A and B and two goods x1 and x2. Their preferences are given by the utility functions:

UA(x1,x2) = x1 + 2x2
UB(x1,x2) = min {x1, 2x2}

Their initial endowment are given by:
wA = (12,0)
wB =(0,12)

1. Draw an Edgeworth box and illustrate: initial endowment, one indifference curve for each consumer and the contract curve.

2. What will the relative price ratio necessarily be in equilibrium in this economy?

3. Give the two consumers budget conditions.

In equilibrium consumer B will consume in one of his 'cracks' on the indifference curve.
4. In which ratio will consumer B consume x1 and x2?

In equilibrium, it will for both markets apply supply = demand. Let xiA and xiB represent consumer A's, respectively consumer B's consumption of good i. Here it must apply that xiA + xiB = 12, i = 1,2
5. Combine this with the answer in (4) and use A's budget constraint to find the equilibrium.
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6 years ago
#2
Hi there,

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