Astrids utility function is U(H A, C A)= H A C A.Birgers utility function is min{H B, C B}.If Astrids initial endowment is no cheese and 11 units of herring and if Birgers initial endowments are 4 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, it must be that demand equals supply in the herring market.This implies that
A)4/(p + 1)+ 6 = 12.
B)4/12 = p.
C)412/4 = p.
D)4/p + 12/2p = 12.
E)min{12, 4} = p.

Question

Quizplus · Accepted Answer

In a competitive equilibrium, the total demand for goods must equal the total supply. Astrid's utility function suggests she values herring and cheese equally, while Birger's utility function indicates a preference for balancing herring and cheese. Given their initial endowments, the equation for equilibrium in the herring market reflects the sum of their demands equaling the total supply of herring (11 units from Astrid plus 4 units from Birger), leading to the correct equation.

Astrids Utility Function Is U(H A, C A)= H a C