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Questions › DSE › DSE 2015 › Q2
1 mark, −0.333333333333333Microeconomics › General equilibrium and exchange economies › Edgeworth box and the contract curveModerateabout 3 min

DSE 2015 Question 2: General equilibrium and exchange economies

In an exchange economy with agents 1,21,21,2 and goods x,yx,yx,y, the agents' preferences are fixed. If it rains, 111's endowment is (10,0)(10,0)(10,0) and 222's is (0,10)(0,10)(0,10); if it shines, 111's is (0,10)(0,10)(0,10) and 222's is (10,0)(10,0)(10,0). Then

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In an exchange economy with agents 1,2 and goods x,y, the agents' preferences are fixed. If it rains, 1 's endowment is (10,0) and 2 's is (0,10); if it shines, 1 's is (0,10) and 2 's is (10,0). Then (A) the set of Pareto efficient allocations is independent of whether it rains or shines (B) the set of Pareto efficient allocations will depend on the weather (C) the set of Pareto efficient allocations may depend on the weather (D) whether the set of Pareto efficient allocations varies with the weather depends on the preferences of the agents

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

What this question tests

This question is on Edgeworth box and the contract curve, part of General equilibrium and exchange economies in Microeconomics.

The geometry of trade between two consumers and the set of efficient allocations.

TestStop has 9 past-paper questions on this subtopic; the nearest in year are below.

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Question from the DSE 2015 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.