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Questions › DSE › DSE 2014 › Q9
1 mark, −0.333333333333333Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumHardabout 2 min

DSE 2014 Question 9: 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}. Suppose only agent 2's preferences are changed so that agent 2 strictly prefers (a,b)(a,b)(a,b) to (c,d)(c,d)(c,d) if b>db>db>d, or b=db=db=d and a>ca>ca>c (lexicographic, YYY first). Then,

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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}. Suppose only agent 2's preferences are changed so that agent 2 strictly prefers (a,b) to (c,d) if b>d, or b=d and a>c (lexicographic, Y first). Then, (A) there is no equilibrium price ratio (B) both of the following are true (C) p_X/p_Y=0 is an equilibrium price ratio (D) p_X/p_Y>0 is an equilibrium price ratio

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.

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

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