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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Mutual insurance problem [closed]

Consider an economy with two agents where agents A and B both have the same risk attitude given by v(x) = ln x. Suppose in state 1, only agent A has a job that earns 3 and B does not earn anything. In-...
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53 views

Bothersome Mean/Variance Analysis

I'm currently writing my thesis in which I compare a series of ESG General Equilibrium models. I fell over this proof in Pastor, Stambaugh, Taylor Sustainable Investing in Equilibrium (2019) page 42. ...
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log-linearize a forward looking variable (P/D) with recursive expression

I can solve the model in dynare but I need your help with the following problem: How does one derive a log-linearized expression for a forward-looking variable around the steady-state? For example, ...
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Determining a variable from empirical results obtained from regression analysis

For context, I am trying to estimate the excess supply and demand in the Commercial Real Estate market and the rental price adjustment mechanism following the change in vacancy. I found a paper titled ...
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47 views

Regression approximation for the rate of change in occupancy rate of residential market with respect to price

I have historical data on occupancy rates for a given neighborhood, along with characteristics and other local economic variables. I am looking to estimate the regression equation with occupancy rates ...
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Uniqueness of Arrow-Debreu Equilibria

I have been trying to figure out conditions on the preferences of traders in an exchange economy such that the equilibrium prices are unique but I cannot be sure since all sources seem to be ...
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38 views

Proof of excess community demand function in Sonnenschein (1973)

Consider the following passage in Sonnenschein (1973; full citation below): Perhaps because I do not know much about the uniform Lipschitz condition, I do not follow his exposition after the first ...
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Are no arbitrage models and equilibrium models equivalent?

This YouTube video from WHU (starting from 3:50) claims that no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM). He uses the Euler ...
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1answer
37 views

Why don't suppliers increase price after a positive demand shock?

Forgive me, I am new to economics. Suppose there's a demand shock in the pork market and D1 shifts to D2. Why not keep quantity supplied fixed at 220 and then raise prices to $3.70, instead of moving ...
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298 views

First welfare theorem and convexity

Are convex preferences needed for the first welfare theorem? It would see so. For example, we could have a situation in which B's indifference curve is non-convex, such that, at the equilibrium X, it ...
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79 views

Edgeworth box and identical tastes

If tastes are homothetic and identical, does this imply that the contract curve is the line connecting the lower left and upper right corners of the box? My understanding: no, it does not. Consumers' ...
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Is an input-output model an equilibrium model?

I know the difference between CGE and input-output models. But can an input-output model be called a equilibrium model?
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66 views

Deadweight Loss Due to Taxes Represented on a Graph of the Market?

Let's say a market is operating at equilibrium, with MSB=MSC, and a tax is imposed on the market. This would shift the supply curve to the left and cause a deadweight loss represented by the triangle ...
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Identify the Pareto welfare weights

I am asked to identify the Pareto welfare weights from the FOC of the following problem $max_{{x_1}{x_2}} U_1(x_1)\ st\ u_2=U_2(x_2)\ and\ x_{1n}+x_{2n}=yn$ The Langrangian is: $L=U_1(x_1)+\lambda_1(...
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227 views

Properties of Financial Markets in Real Life

When studying financial economics, three concepts appear everywhere Equilibria (investors maximise utility, markets clear and aggregated demand equals aggregated supply) Completeness (there are ...
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What is the name for the techniques that are used to determine the determinacy of DSGE models with rational expectations?

What is the name for the techniques that are used to determine the determinacy of DSGE models with rational expectations? For some context, see e.g. the work of THE SOLUTION OF LINEAR DIFFERENCE ...
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Financial Economics and International Economics

What is the difference of Financial Economics and International Economics? Why, How? What are the implications of these differences? Will a model of international economics suddenly become a model of ...
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57 views

Simple General Equilibrium Model of Public Goods: Intuition?

We assume a two person economy, denoted by person A and B. Good y is an ordinary private good, and each person begins with an allocation of this good given by $ y^{A*} $ & $ y^{B*} $ respectively. ...
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38 views

Pareto Set with strictly convex preferences

Suppose the agents A and B have the following utility functions $x_A y_A+12x_A+3y_A $ and $x_By_B +8x_B+9y_B$ respectively with endowments (8,30) and (10,10). The contract curve's equation turns out ...
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Why is macroeconomics about general equilibrium?

In a fairly popular paper published a couple of years ago ("On the future of macroeconomic models"), Blanchard (2018) makes the following statement, among other "widely believed propositions": (i) ...
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Equations of “rational mechanics” and general equilibrium

Vilfredo Pareto, referring to the equations that determine equilibrium, wrote: These equations do not seem new to me, they are old friends. They are the equations of rational mechanics. This ...
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Question about MWG 17.D.1

I tried to solve by myself the exercises of MWG(Mas Colell). However, I think the exercise has an error at 17.D.1. The 17.D.1 asks us that "verify that there are multiple equilibria". However, The ...
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71 views

Is local non-satiation enough to talk about Walrasian Equilibrium being subset of Core

In Advanced Microeconomic Theory, the author mentions that the Cobb Douglas utility function is neither strongly increasing nor strictly quasiconcave over all of R+. But the condition of strongly ...
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Why are marginal rates of substitution are identical at equilibrium consumption levels?

According to wikipedia, "At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical". Why is it so? What does "equilibrium consumption levels" here ...
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Can you set $C / P^{\eta}$ to be the numeraire in a NK model?

Consider a static model with CES demand. Real aggregate demand is $$ C = \left(\sum_j c_j^{(\eta-1)/\eta}\right)^{\eta/(\eta-1)} $$ and labor supply is inelastic, so the budget constraint is $ \sum_j ...
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What guarantees that endowed agents have non-zero prices in an Arrow-Debreu Economy

In my research I am trying to find minimal conditions to guarantee a quasi-equilibrium must always be a typical Arrow-Debreu equilibria in a rather specific production setting. This may be rather ...
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Market Clearing with Dividend and Investment

In pure exchange GE models, a typical goods market clearing condition for good $n$ looks like: $$\sum\limits_{i=1}^Ic_n^i=\sum\limits_{i=1}^Ie_n^i.$$ Consider a model with production where firms can ...
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Data for CGE experiments?

Does anyone know of any open-source U.S. data sets in a format appropriate to whole-economy CGE econometric modeling, i.e. data sets covering the entire economy, divided into at least 20 sectors, with ...
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Index of an Excess Demand Vector

Mas-Colell, Whinston and Green, in Microeconomic Theory (third edition), postulate the concept of an index for an excess demand vector, which is later used in the Index Theorem: A regular equilibrium ...
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Equilibrium price determination in a 2 commodity framework

Following are the set of equations describing the demand and supply of two goods X and Y: Demand functions: $$X_d = a_1 - b_1P_x + c_1P_y$$ $$Y_d = a_2 - b_2P_y +c_2P_x$$ $a_1,~ a_2,~ b_1,~ b_2,~ ...
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89 views

How to calculate the spending multiplier from a given set of equations?

So i have this question: I go along and get Then i need to calculate the effect on the optimal output is G increases by 80: And on the answer sheet it states that the spending multiplier is: From ...
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1answer
92 views

Conditions for Radner Equilibrium

This is definition of Radner Equilibrium from Microeconomic Theory (Mas-Collel, Whinston and Green - Third Edition). I'm confused about two conditions: $\sum_k q_k \cdot z_{ki} \le 0$ (in yellow) ...
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Why do non-binding price ceilings have no effect?

My question seems trivial but I have a particular issue I don't understand. If there's a price ceiling above the price equilibrium, the customers can still use the ceiling as leverage when negotiating,...
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Why incomes should decline in equilibrium state

According to Keynes, the prosperity of a population is measured by the aggregated income of each individual. Spending this income keeps the economy away from a depression. If there is too much ...
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SMD and Lucas critique

One of the consequences of Lucas' critique is that models must be microfounded. On the other side, Sonnenschein-Mantel-Debreu (SMD) theorem claims that microfoundation doesn't have any repercussion on ...
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find the equilibrium level of Y [closed]

Assume that the LM curve for a small open economy with a floating exchange rate is given by Y = 200r – 200 + 2(M/P), while the IS curve is Y = 400 + 3G – 2T + 3NX – 200r. The function for NX is NX = ...
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Computing the competitive equilibrium given initial allocation

Suppose that there are two agents, 1 and 2, and two goods, honey (h) and lemon (l), and that the agents' preferences over these goods are defined by the following utility functions: $$u^1(x_h^1, x_l^...
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82 views

Walrasian Equilibrium intuition given prices and some initial allocation

Suppose we have two agents who are each assigned some initial allocation of two different goods, where the prices of each good are given. Also, suppose the utility functions for each agent are weakly ...
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1answer
35 views

Budget constraint in Radner Sequential Trade Equilibria

Suppose that $q$ is a k-tuple vector of prices for the k assets whose quantities are given by the k-tuple $\theta$. I have just read that in the Radner Sequential Trade Equilibrium (not sure if this ...
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Is Hayek in pro or in con of Equilibrium? [closed]

I had read twice the paper Economics and Knowledge and it seems to me like he is arguing against equilibrium analysis, but I don't know if I'm misunderstanding his arguments.
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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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99 views

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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556 views

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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52 views

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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1answer
298 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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45 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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1answer
115 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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1answer
193 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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2answers
512 views

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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202 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?