Pete and Dud Live in a Two-Commodity World

question 34

Multiple Choice

Pete and Dud live in a two-commodity world. Pete's utility function is U^P(x^P₁, x^P₂) = x^P₁x^P₂. Dud's utility function is U^D(x^D₁, x^D₂) = min{x^D₁, x^D₂}. Pete is initially endowed with 3 units of commodity 1 and 4 units of commodity 2. Dud is initially endowed with 7 units of commodity 1 and 6 units of commodity 2.

• A) Both consume 5 units of each good in competitive equilibrium.
• B) At competitive equilibrium, Dud consumes 6 units of each, since the 7th unit of his endowment of commodity 1 gives him no added utility.
• C) At a competitive equilibrium, Dud must consume equal amounts of both goods, so the price of good 1 must equal the price of good 2.
• D) The prices of the two goods cannot be equal in equilibrium since Pete and Dud do not have equal endowments.
• E) None of the above.

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Definitions:

Behavioural Activation

A therapeutic approach that focuses on engaging in activities that are enjoyable or valuable to improve mood and reduce depression.

Treating Depression

The process of managing and alleviating the symptoms of depression through various therapeutic approaches, including medication, psychotherapy, and lifestyle changes.

Natural Reinforcers

Rewards that naturally arise from performing a specific behavior, such as satisfaction from eating when hungry or resting when tired.