doubt gen. equilib.

[Abhyudaya]

Hello Everyone....

Could anyone tell me if competitive equilibrium depends upon initial endowments?
If yes, then it must be the case that he should be better of after the trade....otherwise
he wudnt engage in trade....

Pls help....

[Ankit]

Yes it does It is used when you write the budget eqn, income is equal to eqb price times the initial endownment.

You are right about the trading part but you can't say anything about the profit till you find the eqb price, rather you can check by utility.

[Abhyudaya]

http://economicsentrance.weebly.com/uploads/1/1/0/5/1105777/2011-option-a.pdf

in above paper see Q 47 ...my doubt is that why person choses(7,0) cos
by choosing this budle he gets lower utility from his initial endowments..
 why did he trade then?

[Ankit]

Hi Abhudya, I am sorry I am not getting your doubt properly. The questions has given equilibarium allocation and asks for possible endownments.

Now since his utility is trying to maximize his minimum it is clearly being done by chosing (6,1) over (7,0) and (4,4) over (3,5).

I am not sure if I have answered your questions.

Also can you tell me, how you approach such questions in which price is to be determined for an eqb allocation?

[maahi]

hes not choosing 7,0 that is his endowment that determines his income .

i don't think taht endowments affect d eqm . i think they just determine d income bt i m nt sure . i wud like duck to confirm

[Abhyudaya]

Thanks a lot Ankit n Maahi...........

M so buddhu....didnt read quest. properly.....Ankit u r right...he is better off for sure...
I thought other way round...took endo. as bundles consumed n vice versa....

Guys just relax....Best Of Luck to both of you from my side....

:)
:)

[Abhyudaya]

Ankit.....since i have read d gen equil on my own...I alwys prefer to do quest.
wid logic.....if they r supported by equations then i go with equations....
but it is quite cumbersome to make them n solve them....

best strategy wud be i think.....draw IC's n then check for PO points...n then check for
com. equlibrium....

Just think on logical grounds n a bit of intuition....rely more on former....
:)