DSE 2011 Q.46

[L]

Hi guys



I want to confirm that what will be pareto efficient allocations if b (beta) > a (alpha).
What I have got is for the market of X to clear, price of X should be zero (which is the answer for the question). So, in that case agent 2 cannot buy anything and agent 1 will buy a units from 1, and maximizing his utility. So, pareto efficient allocation can be
Agent 1 : (a, a)
Agent 2: (b-a, 0)
Other pareto efficient allocations can be with more than a units of x with agent 1 and correspondingly less with 2 which won't change the utility.
Is this correct?

[onionknight]

Yeah, except these are competitive equilibrium allocations. All allocations between the two lines xa=ya and xb=yb are pareto efficient irrespective of the price ratio.

[L]

Thanks!

From where are you studying General Equilibrium theory?
Sometimes I still get confused on these questions.

[L]

Thanks!

From where are you studying General Equilibrium theory?
Sometimes I still get confused on these questions.

[onionknight]

There isn't much to the theory, practice more problems and you'll be comfortable eventually.

[ABHI1994]

why not option b??plz help?

On 2 June 2015 at 21:11, onionknight [via Discussion forum] <[hidden email]> wrote:

There isn't much to the theory, practice more problems and you'll be comfortable eventually.

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NAML

[Stork]

If Beta< Alpha, there will be an excess demand for x since both individuals demand equal amounts of both commodities. Since there is an excess demand for x its price cannot be equal to 0

[ABHI1994]

thank u

On 3 June 2015 at 15:33, Sourya [via Discussion forum] <[hidden email]> wrote:

If Beta< Alpha, the there will be an excess demand for x since both individuals demand equal amounts of both commodities. Since there is an excess demand for x its price cannot be equal to 0

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[ABHI1994]

why not option b,plz help

On 3 June 2015 at 20:11, SINGH ABHINAV <[hidden email]> wrote:

thank u

On 3 June 2015 at 15:33, Sourya [via Discussion forum] <[hidden email]> wrote:

If Beta< Alpha, the there will be an excess demand for x since both individuals demand equal amounts of both commodities. Since there is an excess demand for x its price cannot be equal to 0

---

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NAML

[Stork]

Firm 2 makes the same profit when p1=3 & p2=2 and when p1=p2=3 therefore option d

[ABHI1994]

and what about firm 1

On 3 June 2015 at 23:54, Sourya [via Discussion forum] <[hidden email]> wrote:

Firm 2 makes the same profit when p1=3 & p2=2 and when p1=p2=3 therefore option d

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NAML

[Stork]

Since firm 2 has a lower Ac than firm 1 it can set price= MC at 3/2 and earn 0 profit (firm 1 then produces nothing & also earns 0 profit ). However by setting price greater than 3/2 firm 2 can earn some profit. Substituting prices given in the options in the firms profit function firm 2 earns the same profit in both cases as shown in option d. Thats what i think, though it seems a bit vague

[L]

Form the payoff matrix by calculating profits for each firm in each case and then find Nash equilibria, you will see that D is the best option.  

[ABHI1994]

thank you

On 4 June 2015 at 04:31, L [via Discussion forum] <[hidden email]> wrote:

Form the payoff matrix by calculating profits for each firm in each case and then find Nash equilibria, you will see that D is the best option.  

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NAML