Doubt

[SoniaKapoor]

Suppose u1= min{x1,y1} and u2=x2+y2, e 1 = { 100,100} and e2={50,0}. Find the competitive equilibrium of an economy.

a) x 1,y1 = 100, 50 and x2,y2 = 50,50

b) x 1,y1 = 125, 100 and x2,y2 = 25,0

c) x 1,y1 = 50, 50 and x2,y2 = 100,50

d) x 1,y1 = 100, 100 and x2,y2 = 50,0

[Dreyfus]

Its d...as agent one will always consume guds in same proportion...and due to the endowment of agent with 50 units of x....option c can't be ce

[Granpa Simpson]

The answer will be d i guess..as Vaibhav has rightly pointed out the reason also the other three options cannot be the answer as in all of the three cases either one of the agents is being worse off than the original endowment bundle..!!!!

[mrittik]

A person should stay at her initial endowment atleast....so her initial endowment is a stable one which is comp eqm itself....comp eqm is a sufficient condn for pareto optimality.....ans d is thats why right option...becoz person 1's initial utility level was 100...only opt b & d bolsters this utility level...but in b person 2's utility level is decreased which is not pareto optimal...

[Homer Simpson]

Can you explain why (c) isnt possible?

[Granpa Simpson]

(c) cannot be the answer because the utility of consumer 1 goes down as compared to the initial endowment bundle..!!!

[The Villain]

Yeah its d...c cannot be in eqm as it will not satisfy the price level p2 is greater than 1...

[Homer Simpson]

ok, now i get it. thank you!