For the same economy (endowments and ; ), the competitive equilibrium allocations are
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4 marks, −1MicroeconomicsGeneral equilibrium and exchange economiesWalras' law, numeraire and relative pricesHardabout 4 min
DSE 2020 Question 28: General equilibrium and exchange economies
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For the same economy (endowments (0,9) and (10,0); u₁=u₂=min {x,y}), the competitive equilibrium allocations are (A) 1 gets (10-x,9-y) and 2 gets (x,y), where x∈[9,10] and y=9 (B) 1 gets (x,y) and 2 gets (10-x,9-y), where x∈[9,10] and y=9 (C) 1 gets (x,y) and 2 gets (9-x,10-y), where x∈[8,9] and y=10 (D) 1 gets (x,y) and 2 gets (9-x,10-y), where x=9 and y∈[9,10]
Also written as: For the same economy (endowments (0,9) and (10,0); u_1=u_2=min {x,y}), the competitive equilibrium allocations are
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.
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