question archive Consider a two-person, two-good economy (say apples and bananas) without production
Subject:EconomicsPrice:2.87 Bought7
Consider a two-person, two-good economy (say apples and bananas) without production. Both consumers have identical preferences, given by u(a,b)= a^0.2 * b^1-0.2 , where a denotes the consumption of apples, and b the consumption of bananas. Person 1 owns 40 bananas and 20 apples, whereas person 2 owns 20 bananas and 40 apples. Calculate the equilibrium value of P2/P1 for this economy.
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