Equilibrium of an exchange economy, Financial Management

The economy consists of two consumers, A and B. Both consumers are endowed with one unit of good 1 and one unit of good 2. Consumer A is entirely indi?erent between all consumption plans. Consumer B has the utility function u(x1B; x2B) = x1B .x2B
(i) Find a competitive equilibrium for this economy. (Hint: guess an equilibrium price and then check that it works.)

(ii) Find a second competitive equilibrium (different from the one you found in part (i)).

(iii) Show that the equilibrium is not effcient.

Problem 4

In problem 3 we found an example that shows that if the utility functions are not increasing then the competitive equilibrium may not be effcient. Here is a weaker de?nition of effciency: A feasible consumption plan is weakly e?cient if there is no other feasible consumption plan that increases every consumer's utility.

Prove that every competitive equilibrium of an exchange economy is weakly effcient.

Posted Date: 3/8/2013 5:37:16 AM | Location : United States

Related Discussions:- Equilibrium of an exchange economy, Assignment Help, Ask Question on Equilibrium of an exchange economy, Get Answer, Expert's Help, Equilibrium of an exchange economy Discussions

Write discussion on Equilibrium of an exchange economy
Your posts are moderated
Related Questions
The Oasis Report Amidst all these problems, the Ministry of Social Justice and Empowerment constituted a committee with a view to improve old-age social security in the country

Federal Funds Rate The interest rate that American banks that have funds in excess of the needs dictated by the Federal Reserve use to make overnight loans to banks whose

A Certificate of Deposit (CD) can be defined as a negotiable promissory note, secure and short-term in nature. CDs are issued at a discount to the face value, the

Calculate the Price of Commonwealth bonds Commonwealth Company has a 10% coupon bond with a par value of $1000, The current yield to maturity on new bonds is 8%. If interest is

Question: (a) Describe the axioms of utility. (b) An economic agent has a logarithmic utility function, U(W) = lnw and has initial wealth $20,000. She is offered the sub

Citilink has just completed its 2010/11 management accounts. The directors are going to review the financial statements in the next board meeting. You have to prepare a FINANCIAL

Participants in Hedge Funds: The Sponsor and the Investors Sponsors are promoters and generally, they hold a profit share on percentage for the capital invested in the Fun

Q. Foreign exchange - Maximum loss? From Marton's point of view an adverse outcome is depreciation of the dollar against sterling as this lowers its income when converted into

What are the different types of cash flow to the bondholder of coupon bonds? Coupon bonds deliver two different kinds of cash flow to the bondholder are as follows: a. Face

What are the specefic control procedures of benchmarking Specific control procedures must be in place which include: O Organisational structure (clear lines of responsibilit