Consider an exchange economy with two agents, 1 and 2, and two goods and . Given bundles with and , agent 1 strictly prefers . Consider the claims: (I) in a competitive equilibrium both prices must be positive, and (II) the sum of the allocations to 1 and 2 must equal the sum of their endowments. Which of the following statements is correct?
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Consider an exchange economy with two agents, 1 and 2, and two goods X and Y. Given bundles (a,b),(c,d) ∈ ℝ²₊ with (a,b) ≥ (c,d) and (a,b) ≠ (c,d), agent 1 strictly prefers (a,b). Consider the claims: (I) in a competitive equilibrium both prices must be positive, and (II) the sum of the allocations to 1 and 2 must equal the sum of their endowments. Which of the following statements is correct? (A) I and II are true (B) I is true, but II is false (C) I and II are false (D) I is false, but II is true
Also written as: Consider an exchange economy with two agents, 1 and 2, and two goods X and Y. Given bundles (a,b),(c,d) in R^2_+ with (a,b) >= (c,d) and (a,b) != (c,d), agent 1 strictly prefers (a,b). Consider the claims: (I) in a competitive equilibrium both prices must be positive, and (II) the sum of the allocations to 1 and 2 must equal the sum of their endowments. Which of the following statements is correct?
General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.
This question is on Walras' law, numeraire and relative prices, part of General equilibrium and exchange economies in Microeconomics.
Why one market clears automatically when the others do, and why only relative prices matter.
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Question from the DSE 2018 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.