Consider an exchange economy with two agents Ann and Bob. There are two goods apples and oranges. Ann is born with 25 apples and 75 oranges. Bob is born with 75 apples and 25 oranges.
1. Depict the above information in a Edgeworth Box
Now Ann’s utility function is given by U(x1, x2)= x^1/3 x^2/3 and Bob’s utility is given by U(x1, x2)=x^2/3+x^1/3 where x1 denote the consumption of apples and x2 denote the consumption of oranges. The current price of apples is $10 per unit and price of orange is $5 per unit.
1. What is the demand for apples by Ann
2. What is the demand for apples by Bob
3. What is the demand for oranges by Ann
4. What is the demand for oranges by Bob
5. What is the total demand for apples and oranges
6. what is the total supply of apples and oranges
7. Do the markets clear? i.e. is the demand equals supply in each market
8. What is the market clearing price for the above economy.