For the competitive exchange economy with Agent endowment , Agent endowment , and each agent maximizing : assuming the sum of prices is , the competitive equilibrium prices are
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DSE 2006 Question 23: General equilibrium and exchange economies
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For the competitive exchange economy with Agent 1 endowment (0,5), Agent 2 endowment (10,0), and each agent maximizing min {xᵢ,yᵢ}: assuming the sum of prices is 1, the competitive equilibrium prices (p₁,p₂) are (A) (1,0) (B) (0,1) (C) (1/2,1/2) (D) (1/3,2/3)
Also written as: For the competitive exchange economy with Agent 1 endowment (0,5), Agent 2 endowment (10,0), and each agent maximizing min {x_i,y_i}: assuming the sum of prices is 1, the competitive equilibrium prices (p_1,p_2) are
General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
What this question tests
This question is on Walras' law, numeraire and relative prices, part of General equilibrium and exchange economies in Microeconomics.
Why one market clears automatically when the others do, and why only relative prices matter.
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