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Topic: Exercise 5.12
Conf: Chapter 5, General Equilibrium, Msg: 11225
From: Lean Hooi Hooi (learn_my@yahoo.com)
Date: 6/21/2002 09:45 PM
Exercise 5.12 Lean Hooi Hooi learn_my learn_my@yahoo.com
a)when I convert the indirect utility function V(p,y) to the direct utility function.
U(x1,x2), I cannot solve the problem. i.e.
MRS2 = P1/P2 with P1=1 --> 20-x2 = x1P1
substitute x1P1 with the budget constraint
y=P1x1 + P2x2=20-x2 --> I got 20-x2 = 20-x2.Why?
If I find the Demand fc. x1 and x2 fr.
V(p,y),I can solve the problem. My answer is P1=1/2, consumer 1: (10,10), consumer 2: (20,10), right?
b)with this demand fc.,I got P1=-2? Refer to your hint, prices can not be negative, what should we do? Assume P1=0? Pls. help.
Thank you.