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Questions › DSE › DSE 2014 › Q7
1 mark, −0.333333333333333Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumHardabout 3 min

DSE 2014 Question 7: General equilibrium and exchange economies

Consider an exchange economy with two agents, 1 and 2, and two goods XXX and YYY. Agent 1's endowment is (0,10)(0,10)(0,10) and Agent 2's endowment is (11,0)(11,0)(11,0). Agent 1 strictly prefers (a,b)(a,b)(a,b) to (c,d)(c,d)(c,d) if a>ca>ca>c, or a=ca=ca=c and b>db>db>d (lexicographic, XXX first). Agent 2 strictly prefers (a,b)(a,b)(a,b) to (c,d)(c,d)(c,d) if min⁡{a,b}>min⁡{c,d}\min\{a,b\}>\min\{c,d\}min{a,b}>min{c,d}. Which of the following changes makes (pX,pY)=(1,0)(p_X,p_Y)=(1,0)(pX​,pY​)=(1,0) a competitive equilibrium price vector?

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Consider an exchange economy with two agents, 1 and 2, and two goods X and Y. Agent 1's endowment is (0,10) and Agent 2's endowment is (11,0). Agent 1 strictly prefers (a,b) to (c,d) if a>c, or a=c and b>d (lexicographic, X first). Agent 2 strictly prefers (a,b) to (c,d) if min {a,b}>min {c,d}. Which of the following changes makes (p_X,p_Y)=(1,0) a competitive equilibrium price vector? (A) agent 2's endowment changes to (9,0) (B) agent 2's endowment changes to (10,0) (C) agent 1's endowment changes to (0,12) (D) none of the above

General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.

What this question tests

This question is on Existence and non-existence of equilibrium, part of General equilibrium and exchange economies in Microeconomics.

When a competitive equilibrium exists and the preferences that make it fail.

TestStop has 13 past-paper questions on this subtopic.

Practise General equilibrium and exchange economiesMore on Existence and non-existence of equilibrium

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