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Walrasian equilibrium

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Walrasian equilibrium

RichaS
97 posts

The answer to the second part (competitive equilibrium) is the 45° line from top left to bottom right in an edgeworth box with price ratio equal to 1.
But can anyone explain how? I got the price ratio=1 but not the equilibrium allocations.
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Re: Walrasian equilibrium

Abhitesh
162 posts
Competitive equilibrium(CE) is the consumption bundle and price that
(1) is feasible.
(2) solves consumption optimization problem.

Alternatively, at CE aggregate excess demand for each good is zero.

Any point on the stated line when p=1 satisfies above condition.
Check that p(> or <)1 does not satisfy above condition.