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Questions › DSE › DSE 2018 › Q3
4 marks, −1Microeconomics › General equilibrium and exchange economies › Existence and non-existence of equilibriumVery Hardabout 4 min

DSE 2018 Question 3: General equilibrium and exchange economies

Consider an exchange economy with two agents, 1 and 2, and two goods, XXX and YYY. Each agent's consumption set is R+2\mathbb{R}^2_+R+2​. The endowments of agents 1 and 2 are (10,1)(10, 1)(10,1) and (0,9)(0, 9)(0,9) respectively (the first entry is a quantity of XXX, the second a quantity of YYY). If a>ca > ca>c, or a=ca = ca=c and b>db > db>d, then Agent 1 strictly prefers bundle (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, then Agent 2 strictly prefers bundle (a,b)(a,b)(a,b) to (c,d)(c,d)(c,d). Which of the following allocations is a competitive equilibrium allocation?

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Consider an exchange economy with two agents, 1 and 2, and two goods, X and Y. Each agent's consumption set is ℝ²₊. The endowments of agents 1 and 2 are (10, 1) and (0, 9) respectively (the first entry is a quantity of X, the second a quantity of Y). If a > c, or a = c and b > d, then Agent 1 strictly prefers bundle (a,b) to (c,d). If b > d, or b = d and a > c, then Agent 2 strictly prefers bundle (a,b) to (c,d). Which of the following allocations is a competitive equilibrium allocation? (A) 1 gets (10, 1) and 2 gets (0, 9) (B) None of the above (C) 1 gets (10, 10) and 2 gets (0, 0) (D) 1 gets (5, 5) and 2 gets (5, 5)

Also written as: Consider an exchange economy with two agents, 1 and 2, and two goods, X and Y. Each agent's consumption set is R^2_+. The endowments of agents 1 and 2 are (10, 1) and (0, 9) respectively (the first entry is a quantity of X, the second a quantity of Y). If a > c, or a = c and b > d, then Agent 1 strictly prefers bundle (a,b) to (c,d). If b > d, or b = d and a > c, then Agent 2 strictly prefers bundle (a,b) to (c,d). Which of the following allocations is a competitive equilibrium allocation?

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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