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Questions › DSE › DSE 2010 › Q53
2 marksMicroeconomics › General equilibrium and exchange economies › Competitive equilibrium in an exchange economyHardabout 4 min

DSE 2010 Question 53: General equilibrium and exchange economies

Now suppose agent 1 lexicographically prefers yyy to xxx and agent 2 treats xxx and yyy as perfect substitutes. The set of all possible competitive equilibrium prices consists of all px>0,py>0p_{x}>0,p_{y}>0px​>0,py​>0 such that

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Now suppose agent 1 lexicographically prefers y to x and agent 2 treats x and y as perfect substitutes. The set of all possible competitive equilibrium prices consists of all pₓ>0,p_y>0 such that (A) pₓ/p_y=1 (B) pₓ/p_y≥ 1 (C) pₓ/p_y≤ 1 (D) pₓ/p_y>0

Also written as: Now suppose agent 1 lexicographically prefers y to x and agent 2 treats x and y as perfect substitutes. The set of all possible competitive equilibrium prices consists of all p_x>0,p_y>0 such that

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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Question from the DSE 2010 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.