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Questions tagged [general-equilibrium]

In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall (or "general") equilibrium.

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What are the assumptions behind calculating the market equilibrium from supply and demand curves?

Imagine that there are 5 buyers (B1,...,B5) with maximum willingness to pay as follows: B1 = $5 B2 = $4 B3 = $3 B4 = $2 B5 = $1 Imagine that there are 5 sellers (...
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Solve for the steady state with CRS Cobb-Douglas, problem with the system of equations

There is one agent with utility function given by: \begin{equation} U(c,l) = \frac{c^{1-\sigma}}{1-\sigma}-\frac{l^{1+\gamma}}{1+\gamma}\tag{1} \end{equation} With budget constraint: \begin{...
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Pareto set with Cobb-Douglas and Leontief preferences

If $U_A(x_A,y_A)=x_Ay_A$ and $U_B(x_B,y_B)=min(x_B,y_B)$ and the total endowments are (8,4), is the Pareto set given by the line joining the kinks of B (black line shown in the diagram)? Shouldn't the ...
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Walras's law in a Fisher market

Walras's law is stated for an exchange market: each agent comes to the market with a certain endowment of each commodity, a price-vector is determined, and the demand of each agent is the best bundle ...
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119 views

Pareto set and Edgeworth box

General equilibrium framework; two individuals, two goods represented in an Edgeworth box. Is it true that if the preference are both strongly monotonic the Pareto set will go from the origin of an ...
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25 views

Equilibria in non regular economies

We know that in regular economies general equilibrium theory predicts a finite and odd number of equilibria, using the properties of the excess demand function and the index theorem. How about the ...
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55 views

General Equilibrium Involving Production

I need a little conceptual clarification. For a standard $N*K*M$ general equilibrium model, would an allocation, say, $y^k$ be Pareto Optimal if it does not solve $max(py^k)$? I understand that the ...
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58 views

Can the endowment point be the competitive equilibrium?

Quoting from MWG p.519, Chapter 10: Pure Exchange, The Edgeworth Box ..., any intersection of the consumers' offer curves at an allocation different from the endowment point $\omega$ corresponds to ...
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Pareto Optimality of Endowments

Consider a $2*2$ exchange economy where individual $1$ has an endowment $(4,5)$ and individual 2 has an endowment $(6,5)$. The utility functions of individuals are represented by $U({x}_i{y}_i)$=${x}...
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76 views

Blocking Coalitions

For $n$ individuals, can a blocking coalition only be formed by at least $n/2$ individuals? For example, if there are 6 individuals, can less than 3 individuals form blocking coalitions?
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Necessary conditions for the existence of a competitive equilibirum

I got that in an exchange economy, conditions as preferences being continuous, strictly convex and strongly monotone and $\sum_i \omega_i\gg 0$ are sufficient conditions for the existence of a ...
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Assumptions for the existence of a Walrasian equilibrium

I have a problem set stating that a competitive equilibrium does exist under a series of assumptions on the economy. The question is "Show that the following six assumptions are needed for existence ...
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70 views

Exercise where lagrangian is needed?

I teach a general equilibrium class in my university and I want to have an exercise that is not too difficult where the Lagrangian multiplier is needed. I was under the impression that with Cobb ...
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How likely are the Sonnenschein-Mantel-Debreu results?

I have been reading about the SMD results and it's "damning" nature for GET. My understanding of the result is as follows: price changes not only cause a substitution effect but also change the wealth ...
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How to add a third factor of production to a static CGE-Model in gEcon

I am currently using the tool gEcon trying to create static CGE-models. As a starting point I am using a sample model from the gEcon developers. I already implemented small changes and managed that I ...
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105 views

MICROECONOMICS: Optimal quantity produced in a Perfect Competition Market

Suppose the Total Cost function of a firm in Perfect Competition is given by: $$C(q) = 450 + 15q + 2q^2$$ The market price is $P = 15$ per unit Determine the optimal quantity produced by ...
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Would a very cheap renewable energy source be harmful economically?

This question is not on whether these devices work or not but so much as if they did work. What if electricity can be made so cheap that everyone could afford it ti the point there was no demand for ...
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Walras's Law V.S Say's Law- Is there a difference?

I've been going over the concept of Walras's Law and often references to Say's Law. I've heard and have seen online that they are really the same thing however by looking at the definitions I notice a ...
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Quantity supplied & demanded equation with tax

Here's the simple question I can't get my head around :( QD= 120-P QS= 2P-10 Tax= 25 euro per unit How much does the government receive?
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Do I understand the second welfare theorem correctly?

As far as I understand, the second welfare theorem says that all Pareto-optimal allocations can be reached by market equilibrium on free competitive markets. Yet it seems that this understanding is ...
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What purpose does general equilibrium serve in practice?

What purpose does general equilibrium serve in practice? How is it useful for people (since economics is supposed to assist politics, which is supposed to benefit people)?
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Luce Choice Axiom, Quantal Response Equilibrium

How is the Quantal response equilibrium model influenced by the Luce choice axiom since Quantal Response equilibrium takes into account the rationality parameter ß and I dont see the mention of ...
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1answer
77 views

Wealth transfer by Social Planner in GE

I am reading the definition of a price equilibrium with transfer in MWG on page 548, 524-5. Consider two-consumer exchange economy. If social planner wants to transfer wealth, how does she achieve ...
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The social welfare of a unique general competitive equilibrium in an exchange economy

The first theorem of welfare economics states that "Every Walrasian Equilibrium (WE) is Pareto Efficient (PE)" - Microeconomic Theory Nicholson, Synder 11th ed. p477. But PE is quite a weak condition. ...
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Say's law stated in terms of general equilibrium theory?

Say's law is roughly that "an increase in aggregate supply generates an equal increase in aggregate demand". Can this law be stated, or derived from, a model of general equilibrium? EDIT: what if we ...
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Microeconomics of GDP

Macroeconomists tend to study GDP in terms of macro variables. Microeconomists study general equilibrium (among other thinga of course). Is there theory about the relation between general ...
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In what contexts are stable markets sub-optimal?

My understanding is that market stability is a good thing, because it allows more reliable estimates of profits (revenues minus expenses) and expected return-on-investment related to new investments. ...
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In Mankiw's Macreoconomics, how come capital is assumed to be fixed while investment is assumed to be variable?

I'm looking at Greg Mankiw's Macroeconomics (7th edition), at the model presented in chapter 3: $Y = C + I + G,$ where $Y$ is total output, $C = C(Y-T)$ is consumption, $T$ are net taxes (fixed by ...
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546 views

Is the convexity of production sets necessary for the welfare theorems?

I have read that the convexity of production sets (for instance non-increasing returns to scale) is not a necessary assumption for the first welfare theorem but it is for the second welfare theorem. ...
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General Equilibrium allocation holding fixed a consumer's utility

I'm having some issues with solving this general equilibrium exercise. The way I started off is by assuming that since consumer 2's utility is fixed, he will have a fixed utility function. Then ...
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67 views

How does demand-supply equilibrium interact with profit maximisation?

My understanding of supply and demand is that at higher prices sellers are more willing to supply and buyers will demand less, and the total transaction volume will be supply or demand, whichever is ...
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357 views

Existence of competitive equilibrium between max utility function and min utility function

u1(x1,y1)=max(x1,y1) ω1=(0.2,0.2); u2(x2,y2)=min(x2,y2) ω2=(0.8,0.8) The utility functions for two individuals and their endowments are given above for a two person two good economy. My question is ...
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Price discriminating monopolist question

A price discriminating monopolist sells in two markets. Inverse demand in market 1 is given by: $$P_1(Q_1) = 80 - (1/2)Q_1$$ and inverse demand in market 2 is given by: $$P_2(Q_2) = 100 - Q_2$$ The ...
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Money in New Keynesian models

I have been doing some reading on general equilibrium theory and it has made me highly confused regarding the logic behind NK models. If I have understood correctly, NK models are based on Walrasian ...
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1answer
120 views

Stone-Geary preferences and competitive equilibrium

Does anybody know if a competitive equilibrium obtains under Stone-Geary preferences; are there multiple equilibria problems; do such preferences admit an analysis with more than one type of ...
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Optimal Fight Purse and Boxing Strategies

The following is all public information available to all the players in this scenario. The General Setup In the aftermath of the infamous race between the tortoise and the hare, the salty hare went ...
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1answer
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Recent economics theories that involve differential topology?

The original development of general equilibrium theories involved differential topology. I wonder if there are any recently developed theories, in any field of economic theories, that utilize ...
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Why do we model that higher government involvement increases output?

I have just read about the "real intertemporal" model of a macroeconomy in Macroeconomics by Stephen Williamson. I am concerned about how it says any increase in government spending, even if it is ...
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General equilibrium papers on universal basic income

Are there any microeconomics or general equilibrium articles on universal basic income? Papers dealing with general wealth transfer mechanisms where a basic universal income would be a subset of the ...
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Equilibrium Uniqueness in a General Equilibrium Framework

I was wondering if anyone had any insight into the conditions that lead to a unique equilibrium in an exchange economy under a general equilibrium framework. More specifically, I know that the two "...
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Will SRAS curve definitely shift if LRAS curve shifts?

From what I know, a shift in LRAS is generally caused by a change in maximum productive capacity of an economy, which affects the full-employment output level. Such change in maximum productive ...
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Dynamic Market Equilibrium: motivation for differential equations

I came across this discussion, claiming supply and demand are expressible in terms of its price as $$Q_s=c_1+w_1P+u_1P'+v_1P'',\,Q_d=c_2+w_2P+u_2P'+v_2P''.$$Equating supply to demand for an ...
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253 views

General equilibrium - exchange economy with time and perishable goods

I am attempting to solve a general equilibrium problem from the textbook Jehle and Reny. However, I am slightly confused if my approach is correct. The question is as follows. Consider an exchange ...
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Looking for discussion on equilibrium vs dynamic models in econometrics

I'm a statistician/machine learning scientist more familiar with molecular bio than economics. Trying to find out if an issue I perceive in bio modeling also occurs in econometric modeling. A common ...
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456 views

Question regarding General Equilibrium under non-convexities

I have the following question on my problem set: It's clear to me, since consumer 2 does not care about good 2, that we should give all the economy's endowment of good 2 to consumer 1. In the other ...
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supply demand question beginner

I am learning about shifts in supply and demand. Things that shift supply include things like improvement in production technologies. But why would a firm want to increase their supply if they are ...
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1answer
136 views

Can an overall improvement in technology make the owners of one factor worse off?

In a closed two-factor economy, suppose there is a biased technological improvement that increases the productivity of both factors, but one more than the other. Can this reduce the aggregate returns (...
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What would be the consequences of universal parity of buying power (wage value) and freedom to buy?

I've wondered about this for many, many, years..... maybe there's an answer (or several answers?) after all. As the global economy is set up, one reason a person in the US and EU can afford a nice ...
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1answer
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General equilibrium regarding on U= max(ax,ay) + min(x,y) [closed]

Please kindly instruct me on solving the following in a general equilibrium framework with standard budget constraint, $$ u^{1}\left ( x \right )= max\left [ \frac{x_{1}}{10}, \frac{x_{2}}{10}\right ]...
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The second welfare theorem without monotonicity

Are there non monotonic preferences that are strictly convex and continues but the second welfare theorem does not hold for them?