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Questions › DSE › DSE 2015 › Q30
2 marks, −0.666666666666667Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumHardabout 4 min

DSE 2015 Question 30: General equilibrium and exchange economies

An exchange economy has agents 1,21,21,2 and goods x,yx,yx,y. Agent 111 lexicographically prefers xxx to yyy; agent 222's utility is min⁡{x,y}\min\{x,y\}min{x,y}. Endowments are (0,10)(0,10)(0,10) for 111 and (10,0)(10,0)(10,0) for 222. The competitive equilibrium price ratio px/pyp_x/p_ypx​/py​

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An exchange economy has agents 1,2 and goods x,y. Agent 1 lexicographically prefers x to y; agent 2 's utility is min {x,y}. Endowments are (0,10) for 1 and (10,0) for 2. The competitive equilibrium price ratio pₓ/p_y (A) can be any positive number (B) is greater than 1 (C) is less than 1 (D) does not exist

Also written as: An exchange economy has agents 1,2 and goods x,y. Agent 1 lexicographically prefers x to y; agent 2 's utility is min {x,y}. Endowments are (0,10) for 1 and (10,0) for 2. The competitive equilibrium price ratio p_x/p_y

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