Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F ? C. The price of clothing is always $1
If the price of food is $3, does a competitive equilibrium exist? If not, what will happen to the price of food?
If the price of food is $3, the farmer's initial wealth is $30. His budget line is 30 = 3F + C. His budget line is tangent to an indifference curve when C/F = 3. Substituting yields 30 = 6F or F = 5 and C = 15. The tailor's budget line is 20 = 3F + C. His budget line is tangent to an indifference curve when C/F = 3. Substituting yields 20 = 6F or F = 3.33 and C = 10. In total 8.33 units of food and 25 units of clothing are demanded. There is excess demand for clothing and excess supply of food. The price of food will fall. When the price of food is $2, both markets clear.
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Which of the following is not a bargaining advantage enjoyed by bureau's?
a. They only have one legislature to deal with so bureaus are quite experienced in extracting a favorable budget agreement. b. The legislature typically gets all information on the bureau from the bureau itself. c. The bureaus have the ability to go out and hire the best negotiators while members of the legislature are the fixed negotiators on the other side. d. Considerable bargaining occurs in committees comprised of high demanders of the output of the bureaucracy.
Microeconomics and macroeconomics use different units of analysis
Indicate whether the statement is true or false