I am attempting to solve a general equilibrium in pure exchange economy problem where the first consumer has an endowment of $(3, 4)$ and a utility function of $U(x) = 3x + 5y$. The second consumer has an endowment of $(7, 10)$ and his utility function has the Leontief form $U(x) = \min(x,3y)$. I struggle to find the the Walrasian Equilibrium price ratio and also the allocation.

How would you start in order to solve this ?

  • $\begingroup$ Start by finding the individual demand functions. Add them up to get aggregate demand. Find prices so that demand for one of the goods equals supply. Thanks to Walras law, that's your equilibrium price. $\endgroup$ Dec 10 '20 at 20:17

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.