Astrid's utility function is U(H_A, C_A)= H_AC_A.Birger's utility function is min{H_B, C_B}.If Astrid's initial endowment is no cheese and 13 units of herring and if Birger's initial endowments are 12 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, demand equals supply in the herring market.This implies that A)12/(p + 1)+ 6.50 = 13. B)12/13 = p. C)13/12 = p. D)12/p + 13/2p = 13. E)min{13, 12} = p.

Question

Quizplus · Accepted Answer

The correct choice is based on the equilibrium condition where demand equals supply in the herring market. Given Astrid's and Birger's utility functions and initial endowments, the equilibrium must ensure that the total amount of herring demanded by both individuals equals the total amount supplied (13 units, as per Astrid's endowment). Choice A mathematically represents this equilibrium condition, taking into account the competitive equilibrium price p of herring, with cheese as the numeraire.

Astrid's Utility Function Is U(HA, CA)= HACA

Astrid's Utility Function Is U(H_A, C_A)= H_AC_A