Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › DSE › DSE 2017 › Q4
2 marks, −0.666666666666667Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumHardabout 4 min

DSE 2017 Question 4: General equilibrium and exchange economies

In an exchange economy with agents AAA and BBB and goods xxx and yyy, AAA's endowment is (0,1)(0,1)(0,1) and BBB's is (2,0)(2,0)(2,0) (only nonnegative consumption allowed). AAA lexicographically prefers xxx to yyy, and BBB treats xxx and yyy as perfect substitutes (strictly prefers (x,y)(x,y)(x,y) to (x′,y′)(x',y')(x′,y′) iff x+y>x′+y′x+y>x'+y'x+y>x′+y′). The competitive equilibrium allocation for this economy is

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

In an exchange economy with agents A and B and goods x and y, A 's endowment is (0,1) and B 's is (2,0) (only nonnegative consumption allowed). A lexicographically prefers x to y, and B treats x and y as perfect substitutes (strictly prefers (x,y) to (x′,y′) iff x+y>x′+y′). The competitive equilibrium allocation for this economy is (A) A gets (0,1) and B gets (2,0) (B) A gets (2,0) and B gets (0,1) (C) A gets (3/2,0) and B gets (1/2,1) (D) A gets (1,0) and B gets (1,1)

Also written as: In an exchange economy with agents A and B and goods x and y, A 's endowment is (0,1) and B 's is (2,0) (only nonnegative consumption allowed). A lexicographically prefers x to y, and B treats x and y as perfect substitutes (strictly prefers (x,y) to (x',y') iff x+y>x'+y'). The competitive equilibrium allocation for this economy is

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

Similar questions from other papers

  • CUET-PG 2026 · Q2_ Curve shows the all efficient allocation of goods between two consumers, or of two inputs between two production functions.
  • IIT JAM 2026 · Q6Which one of the following statements is CORRECT for the general equilibrium analysis for a two-person and two-good pure exchange economy?
  • GATE 2025 · Q58Consider a two-person exchange economy where two goods, x and y are available in limited quantities of 50 and 100, respectively. The preferences of the two persons…
  • CUET-PG 2024 · Q18In a 2x2 general equilibrium model of exchange with goods X and Y and two consumers 1 and 2, both of whom have a weakly positive endowment of X and Y, in the exchange…
  • GATE 2024 · Q46Consider a two good economy where a denotes consumption of apricots and b denotes consumption of bananas. Anu's utility function is U^(Anu)(a,b) = a+2b, and Binu's…

Question from the DSE 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.