GE doubt

[Halflife]

CONTENTS DELETED

The author has deleted this message.

[eco aspirant]

Recall the feasibility condition

px.xd + py.yd <= px.w1 + py.w2
where (xd, yd) is the demanded bundle at those prices.The above condition should hold for all individuals.
Put another way, competitive equilibrium can occur even with excess supply.

[Halflife]

CONTENTS DELETED

The author has deleted this message.

[Asd1995]

I won't agree with the other response, I would say that when px=0, your budget line for person 2 is essentially 0*x + py*y=0, which for non zero py becomes y=0, x=anything. Since utility is always zero, the person is indifferent to (x,0) where x is any value from 0 to infinity.

Geometrically the budget line is simply the x axis, which COINCIDES with the indifference curve (U=0) for infinite number of points, hence any bundle on that conincident line (x-axis)is an optimal/demanded bundle.

Demand always has to equal supply, you just made a little error in finding the demand.

[Halflife]

CONTENTS DELETED

The author has deleted this message.

[eco aspirant]

Yeah you are correct. I seemed to have mixed two different concepts.

Px= 0 implies x1d >= y1d thus competitive allocation would be the set of all (x1, y1) such that y1=10 and x1 + x2 = 11 as well as 10 <=x1<=11.