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Questions › IIT JAM › IIT JAM 2024 › Q60
2 marksMicroeconomics › General equilibrium and exchange economies › Competitive equilibrium in an exchange economyHardabout 3 min

IIT JAM 2024 Question 60: General equilibrium and exchange economies

Two goods X,YX, YX,Y and two consumers A,BA, BA,B in a pure exchange economy, with UA=2X0.4Y0.6U_A = 2X^{0.4}Y^{0.6}UA​=2X0.4Y0.6 and UB=X0.3Y0.7U_B = X^{0.3}Y^{0.7}UB​=X0.3Y0.7. Each of AAA and BBB is endowed with 505050 units of XXX and 202020 units of YYY. If the price of YYY is normalised to 111, the equilibrium price of XXX is ________ (rounded off to two decimal places).

Answer and worked solution

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Plain-text version

Two goods X, Y and two consumers A, B in a pure exchange economy, with U_A = 2X⁰·⁴Y⁰·⁶ and U_B = X⁰·³Y⁰·⁷. Each of A and B is endowed with 50 units of X and 20 units of Y. If the price of Y is normalised to 1, the equilibrium price of X is (rounded off to two decimal places).

Also written as: Two goods X, Y and two consumers A, B in a pure exchange economy, with U_A = 2X^(0.4)Y^(0.6) and U_B = X^(0.3)Y^(0.7). Each of A and B is endowed with 50 units of X and 20 units of Y. If the price of Y is normalised to 1, the equilibrium price of X is (rounded off to two decimal places).

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

What this question tests

This question is on Competitive equilibrium in an exchange economy, part of General equilibrium and exchange economies in Microeconomics.

Finding the prices at which every consumer's chosen bundle clears the market.

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