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Questions › DSE › DSE 2006 › Q22
2 marksMicroeconomics › General equilibrium and exchange economies › Competitive equilibrium in an exchange economyHardabout 3 min

DSE 2006 Question 22: General equilibrium and exchange economies

Consider the competitive exchange economy with two agents (111 and 222) and two goods (XXX and YYY): Agent 111's endowment is (0,5)(0,5)(0,5), Agent 222's endowment is (10,0)(10,0)(10,0), and Agent iii maximizes min⁡{xi,yi}\min\{x_i,y_i\}min{xi​,yi​}. The allocation with (x1,y1)=(10,5)(x_1,y_1)=(10,5)(x1​,y1​)=(10,5) and (x2,y2)=(0,0)(x_2,y_2)=(0,0)(x2​,y2​)=(0,0) is

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Consider the competitive exchange economy with two agents (1 and 2) and two goods (X and Y): Agent 1 's endowment is (0,5), Agent 2 's endowment is (10,0), and Agent i maximizes min {xᵢ,yᵢ}. The allocation with (x₁,y₁)=(10,5) and (x₂,y₂)=(0,0) is (A) a competitive equilibrium allocation and is Pareto efficient (B) not a competitive equilibrium allocation but is Pareto efficient (C) neither a competitive equilibrium allocation nor is Pareto efficient (D) a competitive equilibrium allocation but is not Pareto efficient

Also written as: Consider the competitive exchange economy with two agents (1 and 2) and two goods (X and Y): Agent 1 's endowment is (0,5), Agent 2 's endowment is (10,0), and Agent i maximizes min {x_i,y_i}. The allocation with (x_1,y_1)=(10,5) and (x_2,y_2)=(0,0) 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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