Re: 2005 dse general equilibrium

Posted by Amit Goyal on Jan 07, 2010; 11:06am
URL: http://discussion-forum.276.s1.nabble.com/2005-dse-general-equilibrium-tp4245357p4265904.html

Dear Sweata,

A simple explanation why it cannot be (c) is the following:
We know that endowment is always affordable bacause your income at given prices is the value of your endowment and hence you always have the power to buy back your endowment. Agent 1's endowment is (100, 100), i understand that (50, 50) is affordable for this agent at all prices but we must not forget that (100, 100) is also affordable and a consumer with utility function min{x, y} will not buy (50, 50) when he can buy (100, 100) as he is a utility maximizing consumer. This rules out (c).