Re: General Equilibrium

Posted by duck on May 05, 2016; 10:42am
URL: http://discussion-forum.276.s1.nabble.com/General-Equilibrium-tp7600360p7600386.html

Hi bhavook :)

For Competitive equilibrium, the following two conditions should be satisfied:
1) Consumers are maximizing their utility ie. finding the demand.
2) Market clearing for all goods i.e demand = supply for both the goods.  

In your question:
Both the consumers have "min" utility function so they will demand equal amount of good x and good y in equilibrium. But the quantity for good x (10 units) is more than the quantity of good y (5 units) available in the economy. Therefore, to clear the market, price of good which is available in abundance (here, it is good x ) should be zero.