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Questions › DSE › DSE 2008 › Q33
2 marksMicroeconomics › General equilibrium and exchange economies › Competitive equilibrium in an exchange economyHardabout 4 min

DSE 2008 Question 33: General equilibrium and exchange economies

Setup, from Q32 of the paper:

Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u1(x,y)=x2y2u_{1}(x,y)=x^{2}y^{2}u1​(x,y)=x2y2 and person 2's is u2(x,y)=ex+yu_{2}(x,y)=e^{x+y}u2​(x,y)=ex+y. The total endowment is (2,1)(2,1)(2,1). The allocation (x1,y1)=(1,1)(x_{1},y_{1})=(1,1)(x1​,y1​)=(1,1) and (x2,y2)=(1,0)(x_{2},y_{2})=(1,0)(x2​,y2​)=(1,0) is

Consider the situation of the preceding question (u1=x2y2u_{1}=x^{2}y^{2}u1​=x2y2, u2=ex+yu_{2}=e^{x+y}u2​=ex+y, total endowment (2,1)(2,1)(2,1)). If person 1's endowment is (1,1)(1,1)(1,1) and person 2's is (1,0)(1,0)(1,0), then the following allocation is a competitive equilibrium:

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Setup, from Q32 of the paper: Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u₁(x,y)=x²y² and person 2's is u₂(x,y)=e^(x+y). The total endowment is (2,1). The allocation (x₁,y₁)=(1,1) and (x₂,y₂)=(1,0) is Consider the situation of the preceding question (u₁=x²y², u₂=e^(x+y), total endowment (2,1)). If person 1's endowment is (1,1) and person 2's is (1,0), then the following allocation is a competitive equilibrium: (A) (x₁,y₁)=(3/2,1/2) and (x₂,y₂)=(1/2,1/2) (B) (x₁,y₁)=(1,1) and (x₂,y₂)=(1,0) (C) (x₁,y₁)=(2,0) and (x₂,y₂)=(0,1) (D) (x₁,y₁)=(2,1) and (x₂,y₂)=(0,0)

Also written as: Setup, from Q32 of the paper: Consider an exchange economy with persons 1 and 2 and goods x and y. Person 1's utility is u_1(x,y)=x^2y^2 and person 2's is u_2(x,y)=e^(x+y). The total endowment is (2,1). The allocation (x_1,y_1)=(1,1) and (x_2,y_2)=(1,0) is Consider the situation of the preceding question (u_1=x^2y^2, u_2=e^(x+y), total endowment (2,1)). If person 1's endowment is (1,1) and person 2's is (1,0), then the following allocation is a competitive equilibrium:

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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