Re: DSE-2010 Ques: 31-34

Posted by Prerna Rakheja on Jun 11, 2013; 2:05pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-2010-Ques-31-34-tp6501930p7582139.html

Hi Madhur,

For; Agent 1 gets (2,1) and Agent 2 gets (0,0) to be a competitive equilibrium it must be that px/py = 0 ==> px = 0

Since agent 1 lexicographically prefers y to x, thus after having attained all the y that is possible given that x is a free good he would demand infinite amount of x, while total endowment is only 2 units. Hence, market wont clear thus this cannot be a competitive equilibrium.