DSE 2018 Question 3: General equilibrium and exchange economies
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?
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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.