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Questions › DSE › DSE 2017 › Q6
2 marks, −0.666666666666667Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumModerateabout 3 min

DSE 2017 Question 6: General equilibrium and exchange economies

In the same exchange economy (AAA's endowment (0,1)(0,1)(0,1), BBB's endowment (2,0)(2,0)(2,0), BBB treating xxx and yyy as perfect substitutes), now suppose AAA lexicographically prefers yyy to xxx. The set of all competitive equilibrium prices (px>0, py>0)(p_x>0,\,p_y>0)(px​>0,py​>0) consists of all prices such that

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In the same exchange economy (A 's endowment (0,1), B 's endowment (2,0), B treating x and y as perfect substitutes), now suppose A lexicographically prefers y to x. The set of all competitive equilibrium prices (pₓ>0, p_y>0) consists of all prices such that (A) pₓ/p_y=1 (B) pₓ/p_y≥ 1 (C) pₓ/p_y≤ 1 (D) pₓ/p_y>0

Also written as: In the same exchange economy (A 's endowment (0,1), B 's endowment (2,0), B treating x and y as perfect substitutes), now suppose A lexicographically prefers y to x. The set of all competitive equilibrium prices (p_x>0, p_y>0) consists of all prices such that

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