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Microeconomics, echange/trade question

  1. Mar 26, 2012 #1
    1. The problem statement, all variables and given/known data

    There are 2 consumers, A and B with the following utility functions and endowments:
    uA(xA1, xA2) = a ln xA1 + (1-a) ln xA2 , endowment for A is wA = (0, 1)

    uB(xB1,xB2) = min(xB1,xB2) endowment for B is wB = (1,0)

    Find the market clearing prices and the equilibrium allocation

    2. Relevant equations
    From the Solutions Manual:
    x1A = ay=p1 = ap2=p1; x1B = x2B
    so from budget constraint, (p1 +p2)x1B = p1,
    so x1B =p1=(p1+p2). Choose p1 = 1 an numeraire and solve
    ap2 +1/(1 + p2) = 1.

    3. The attempt at a solution

    My textbook is not helpful and I don't know how to start the question much less get to the answer in the solutions manual. Can anyone give me some help? I'm very lost.
    Thanks
     
  2. jcsd
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