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Questions › DSE › DSE 2014 › Q32
2 marks, −0.666666666666667Microeconomics › General equilibrium and exchange economies › Competitive equilibrium in an exchange economyHardabout 2 min

DSE 2014 Question 32: General equilibrium and exchange economies

Consider an exchange economy with two goods where agents iii and jjj have the same preferences, with the property: if (a,b)(a,b)(a,b) and (c,d)(c,d)(c,d) are distinct indifferent bundles, then the midpoint ((a+c)/2,(b+d)/2)((a+c)/2,(b+d)/2)((a+c)/2,(b+d)/2) is strictly preferred to both (strict convexity). In a competitive equilibrium allocation, iii and jjj

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Consider an exchange economy with two goods where agents i and j have the same preferences, with the property: if (a,b) and (c,d) are distinct indifferent bundles, then the midpoint ((a+c)/2,(b+d)/2) is strictly preferred to both (strict convexity). In a competitive equilibrium allocation, i and j (A) will get the same bundle (B) may get different bundles (C) will get the same bundle, provided their endowments are identical (D) will get the same bundle, provided their endowments are identical and the preferences are monotonically increasing

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 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.