Colette and Hans both consume the same goods in a pure exchange economy.Colette is originally endowed with 15 units of good 1 and 12 units of good 2.Hans is originally endowed with 97 units of good 1 and 4 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)$14 B)$28 C)$2 D)$1 E)$7

Question

Quizplus · Accepted Answer

The equilibrium price of good 2 is $14. 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/p₁15/12 = p₂/1p₂ = $14

Colette and Hans Both Consume the Same Goods in a Pure