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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questions
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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-...
2
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1answer
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. ...
0
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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, ...
0
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0answers
18 views
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 ...
0
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1answer
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 ...
1
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0answers
26 views
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 ...
3
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0answers
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 ...
7
votes
1answer
111 views
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 ...
1
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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 ...
1
vote
3answers
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 ...
4
votes
1answer
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' ...
0
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0answers
28 views
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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1answer
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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0answers
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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(...
4
votes
1answer
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 ...
0
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0answers
11 views
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 ...
0
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1answer
27 views
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 ...
1
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1answer
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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0answers
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 ...
0
votes
1answer
44 views
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) ...
0
votes
1answer
42 views
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 ...
4
votes
0answers
88 views
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 ...
0
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1answer
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 ...
0
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2answers
43 views
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 ...
2
votes
1answer
37 views
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 ...
1
vote
1answer
55 views
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 ...
0
votes
1answer
30 views
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 ...
1
vote
0answers
9 views
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 ...
1
vote
0answers
42 views
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 ...
0
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0answers
39 views
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,~ ...
1
vote
1answer
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 ...
1
vote
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)
...
1
vote
2answers
37 views
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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votes
1answer
102 views
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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votes
2answers
94 views
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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votes
1answer
76 views
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 = ...
-1
votes
1answer
97 views
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^...
0
votes
1answer
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 ...
1
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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 ...
1
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0answers
29 views
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.
2
votes
2answers
224 views
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 (...
0
votes
1answer
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{...
0
votes
2answers
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 ...
1
vote
0answers
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 ...
0
votes
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 ...
0
votes
1answer
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 ...
0
votes
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 ...
0
votes
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 ...
1
vote
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}...
3
votes
1answer
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?
