Answer to Question #5208 in Microeconomics for mriga
Consider the following exchange economy. There are two goods, x and
y, and two consumers A and B. Consumer A owns 1 unit of good x
and nothing of good y, while consumer B owns nothing of good x and
a units of good y, where a 0. Utility functions of the consumers are
identical and are given by
ui(xi; yi) = minfxi; yig, i = A;B.
The price of good x is denoted by px and the price of good y is denoted
(a) For a strictly positive price vector (px; py), i.e. a vector with px > 0
and py > 0, derive the consumersdemand functions.
If the price for gasoline increases, the demand for petroleum rises and if the price for gasoline decreases, the demand for petroleum falls. If the price for cars increases, the demand for petroleum falls and if the price for cars decreases, the demand for petroleum rises. If the income increases, the demand for petroleum rises and if the income decreases, the demand for petroleum falls.