DSE-2010 Ques: 31-34

Posted by Arun on Jun 21, 2011; 9:55pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-2010-Ques-31-34-tp6501930.html

I  tried solving the problem but still have doubts.I read Equilibrium part from both Pindyk and Varian but still confused.Given below are my solutions  and any pointers would be appreciated.


 31) (D)  1 gets (1,0) and 2 gets (1,1)
As it is a pareto efficient solution


32) (A) Px/Py = 1

 (1,0)  and (1,1) would be the pareto efficient solution and the exchange rate of X:Y is 1:1
Or
alternately Agent 1 can offer maximum 1 y for x and Agent would won't trade 1 x for less than 1 y so the agreeable solution is 1:1

33)The distribution is already pareto efficient so there is no scope of trade.How do we decide the price ratio??

34)Initial distribution between agent 1 and 2 is (0,1) and (2,0).As Agent 2 treats x and y as perfect complements so he would be indifferent between (2,0) and (0,0) therefore should not (2,1) and (0,0) be a competitive equilibrium allocation?



Any pointer to some text which could help clear my doubts would be appreciated.