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Questions › DSE › DSE 2004 › Q3
2 marks, −1Microeconomics › General equilibrium and exchange economies › Edgeworth box and the contract curveHardabout 3 min

DSE 2004 Question 3: General equilibrium and exchange economies

Consider a competitive exchange economy with two agents (111 and 222) and two goods (XXX and YYY). Agent 111's endowment of (X,Y)(X,Y)(X,Y) is (1000,0)(1000,0)(1000,0) and Agent 222's endowment is (0,1000)(0,1000)(0,1000). Each Agent iii maximizes utility min⁡{xi,yi}\min\{x_i,y_i\}min{xi​,yi​}. The set of all Pareto efficient allocations for this economy consists of allocations of the form (x1,y1)(x_1,y_1)(x1​,y1​) and (x2,y2)=(1000−x1, 1000−y1)(x_2,y_2)=(1000-x_1,\,1000-y_1)(x2​,y2​)=(1000−x1​,1000−y1​) where

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Consider a competitive exchange economy with two agents (1 and 2) and two goods (X and Y). Agent 1 's endowment of (X,Y) is (1000,0) and Agent 2 's endowment is (0,1000). Each Agent i maximizes utility min {xᵢ,yᵢ}. The set of all Pareto efficient allocations for this economy consists of allocations of the form (x₁,y₁) and (x₂,y₂)=(1000-x₁, 1000-y₁) where (A) x₁=y₁=500 (B) (x₁,y₁)=(1000,0) and (x₁,y₁)=(0,1000) (C) x₁=y₁, for x₁∈[0,1000] (D) x₁∈[0,1000] and y₁∈[0,1000]

Also written as: Consider a competitive exchange economy with two agents (1 and 2) and two goods (X and Y). Agent 1 's endowment of (X,Y) is (1000,0) and Agent 2 's endowment is (0,1000). Each Agent i maximizes utility min {x_i,y_i}. The set of all Pareto efficient allocations for this economy consists of allocations of the form (x_1,y_1) and (x_2,y_2)=(1000-x_1, 1000-y_1) where

General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.

What this question tests

This question is on Edgeworth box and the contract curve, part of General equilibrium and exchange economies in Microeconomics.

The geometry of trade between two consumers and the set of efficient allocations.

TestStop has 9 past-paper questions on this subtopic; the nearest in year are below.

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Question from the DSE 2004 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.