Economics Asked on February 6, 2021
Need help solving last two parts of this problem. We’ve solved for the general equilibrium but not sure how to go from there.
The endowments of two consumers are given by $w_1 = (40,80)$ and $w_2 = (40,20)$, and the consumers’ preferences are given by $U_1= x_1^a x_2^{(1-a)}$ and $U_2= x_1^b x_2^{(1-b)}$,
What is the range of exchange rates that can support trade between the two consumers?
What will be the allocation of goods after the consumers engage in trade under the exchange rate $p_1/p_2 =1$?
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