Intermediate Macroeconomics I
Economics
One Period Competitive Equilibrium
Consider the one period economy discussed in Ch.5 with the following features:
Production function: YzF N K zK N
d d
= =( , ) where z = 7, K=1.
Utility function:
U C al=min[ , ]
where a = 2.
Suppose total time endowment (h) is 10 units.
(1) Originally, G = 2. On the graph paper provided, plot the production
possibility frontier (labeled as PPF1) and the indifference curve (labeled as
IC1) that determine the competitive equilibrium.
Solve for the following equilibrium values:
C* = ____________ , N* = _____________ ,
Y* = ____________ , l* = _____________
(2) Now, G increases to 6. On the graph paper provided, add the new
production possibility frontier (labeled as PPF2) and the indifference curve
(labeled as IC2) that determine the new competitive equilibrium.
Solve for the following equilibrium values:
C* = ____________ , N* = _____________ ,
Y* = ____________ , l* = _____________
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