An economy has agents 1 and 2 and 3 units each of goods X and Y. An allocation is with left over. Each agent faces . Agent 1 (higher on the social ladder) chooses first to maximize ; Agent 2 then maximizes from the remainder. Which allocation is an equilibrium?
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An economy has agents 1 and 2 and 3 units each of goods X and Y. An allocation is ((x₀,y₀),(x₁,y₁),(x₂,y₂)) with (x₀,y₀) left over. Each agent faces xᵢ≤ 3, yᵢ≤ 3, xᵢ²+yᵢ²≤ 12. Agent 1 (higher on the social ladder) chooses first to maximize u₁=x₁²y₁; Agent 2 then maximizes u₂=ax₂+y₂ from the remainder. Which allocation is an equilibrium? (A) ((0,0),(3,√3),(0,3-√3)) (B) ((0,0),(√6,√6),(3-√6,3-√6)) (C) ((0,0),(2.5,√5.75),(0.5,3-√5.75)) (D) ((0,0),(√8,2),(3-√8,1))
Also written as: An economy has agents 1 and 2 and 3 units each of goods X and Y. An allocation is ((x_0,y_0),(x_1,y_1),(x_2,y_2)) with (x_0,y_0) left over. Each agent faces x_i<= 3, y_i<= 3, x_i^2+y_i^2<= 12. Agent 1 (higher on the social ladder) chooses first to maximize u_1=x_1^2y_1; Agent 2 then maximizes u_2=ax_2+y_2 from the remainder. Which allocation is an equilibrium?
General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
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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