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I'm trying to solve the following problem:

Consider an exchange economy with 2 consumers and 2 goods. First, consumer A sets the price, then consumer B maximizes utility according to the price. Then consumer A must make the trade chosen by consumer B.

Now I'm wondering how I should calculate the resulting equilibrium and whether the equilibrium is Pareto optimal. Will consumer A be better off this way, or will consumer A be better off if they both treat prices as given?

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  • $\begingroup$ Here is an example of finding equilibrium and checking for its optimality: economics.stackexchange.com/a/56308/11824 Argue that consumer A will be at least as well off this way in comparison to the situation when they both treat prices as given. $\endgroup$
    – Amit
    Commented Oct 27, 2023 at 1:16
  • $\begingroup$ Does this answer your question? General equilibrium with market power $\endgroup$
    – Giskard
    Commented Oct 27, 2023 at 9:04

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