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Questions › DSE › DSE 2020 › Q27
4 marks, −1Microeconomics › General equilibrium and exchange economies › Walras' law, numeraire and relative pricesHardabout 4 min

DSE 2020 Question 27: General equilibrium and exchange economies

An exchange economy has goods x,yx,yx,y and agents 1,21,21,2 with endowments (ωx1,ωy1)=(0,9)(\omega^1_x,\omega^1_y)=(0,9)(ωx1​,ωy1​)=(0,9) and (ωx2,ωy2)=(10,0)(\omega^2_x,\omega^2_y)=(10,0)(ωx2​,ωy2​)=(10,0), and utilities u1(x,y)=min⁡{x,y}u_1(x,y)=\min\{x,y\}u1​(x,y)=min{x,y} and u2(x,y)=min⁡{x,y}u_2(x,y)=\min\{x,y\}u2​(x,y)=min{x,y}. The competitive equilibrium price ratio px/pyp_x/p_ypx​/py​ is

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An exchange economy has goods x,y and agents 1,2 with endowments (ω¹ₓ,ω¹_y)=(0,9) and (ω²ₓ,ω²_y)=(10,0), and utilities u₁(x,y)=min {x,y} and u₂(x,y)=min {x,y}. The competitive equilibrium price ratio pₓ/p_y is (A) 9/10 (B) 10/9 (C) 1 (D) 0

Also written as: An exchange economy has goods x,y and agents 1,2 with endowments (omega^1_x,omega^1_y)=(0,9) and (omega^2_x,omega^2_y)=(10,0), and utilities u_1(x,y)=min {x,y} and u_2(x,y)=min {x,y}. The competitive equilibrium price ratio p_x/p_y is

General equilibrium and exchange economies has come up 69 times in 7 exams since 2004.

What this question tests

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.

TestStop has 19 past-paper questions on this subtopic; the nearest in year are below.

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