DSE 2011 question 46

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MI
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DSE 2011 question 46

MI
Please help regarding this exchange economy question

Here is the link to the QP.

http://econdse.org/wp-content/uploads/2012/04/2011-Option-A.pdf 


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Re: DSE 2011 question 46

duck
Hi MI.. :)

46) If β>α then, Total units of X available in the economy is greater than total availability of Y.
Now, both agents have "min" utility function..So, both would like to consume equal amount of x and y.
As total X > total Y ..so, some units of x remain undemanded.
It means market for x will not clear for any positive price.
So, it must be the case that "x" needs to be freely available so that its market can be cleared.
Hence, option(c): If β>α then , px=0.

For more clarity, You can assume certain value of α and β , draw edgeworth, IC's and check yourself.. :)
:)