DSE 2005 Question 1: General equilibrium and exchange economies
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 (100,100) and Agent 2's endowment is (50,0). An allocation for Agent i is (xi,yi). Agent 1 maximizes min{x1,y1} and Agent 2 maximizes x2+y2. An example of a competitive equilibrium allocation for this economy is
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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 (100,100) and Agent 2 's endowment is (50,0). An allocation for Agent i is (xᵢ,yᵢ). Agent 1 maximizes min {x₁,y₁} and Agent 2 maximizes x₂+y₂. An example of a competitive equilibrium allocation for this economy is (A) (x₁,y₁)=(100,50) and (x₂,y₂)=(50,50) (B) (x₁,y₁)=(125,100) and (x₂,y₂)=(25,0) (C) (x₁,y₁)=(50,50) and (x₂,y₂)=(100,50) (D) (x₁,y₁)=(100,100) and (x₂,y₂)=(50,0)
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 (100,100) and Agent 2 's endowment is (50,0). An allocation for Agent i is (x_i,y_i). Agent 1 maximizes min {x_1,y_1} and Agent 2 maximizes x_2+y_2. An example of a competitive equilibrium allocation for this economy is
General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
What this question tests
This question is on Competitive equilibrium in an exchange economy, part of General equilibrium and exchange economies in Microeconomics.
Finding the prices at which every consumer's chosen bundle clears the market.
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