Teresa and Jean-Pierre both consume the same goods in a pure exchange economy.Teresa is originally endowed with 9 units of good 1 and 6 units of good 2.Jean-Pierre is originally endowed with 91 units of good 1 and 14 units of good 2.They both have the utility function U(x₁, x₂)= x^1/3₁x^2/3₂.If we let good 1 be the numeraire, so that p₁ = $1, then what will be the equilibrium price of good 2? A)$10 B)$20 C)$2 D)$1 E)$5

Question

Quizplus · Accepted Answer

The equilibrium price of good 2 is $10. This can be found by solving the following system of equations:MRS = p₂/p₁MRS = MU₁/MU₂ = (x₁/x₂)^2/3/^1/3 = x₁/x₂x₁/x₂ = p₂/p₁9/6 = p₂/1p₂ = $10

Teresa and Jean-Pierre Both Consume the Same Goods in a Pure