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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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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1answer
36 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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2answers
33 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 ...
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How does definition of “price equilibrium with transfer” also include the case for the definition of “walrasian equilibrium”?
According to MWG and this answer, walrasian equilibrium is a special case of price equilibrium with transfers. However, since wealth distribution is predetermined in walrasian equilibrium, would it ...
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30 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 ...
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1answer
40 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 ...
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1answer
25 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 ...
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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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0answers
38 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 ...
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17 views
How to numerically calculate equilibrium when the problem is non-linear?
I have recently started reading about financial related topics and I have stumbled upon the term “equilibrium”. In general when supply increases, the price of the product tends to increase as well ...
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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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1answer
39 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
58 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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2answers
35 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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35 views
Given a Walrasian equilibrium, compute all intitial endowments that lead to given Walrasian equilibrium
If you would be so kind to take a look at the following problem:*
Consider an economy with two agents Stan ($S$) and Laurel ($L$) and two goods: Cans of coke ($C$) and Pretzels ($P$). The total ...
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1answer
100 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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2answers
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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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1answer
48 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 = ...
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1answer
53 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^...
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1answer
65 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
26 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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2answers
148 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 (...
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1answer
80 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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2answers
379 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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45 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
242 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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1answer
39 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
98 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
132 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
331 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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1answer
154 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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1answer
42 views
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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204 views
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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1answer
148 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 ...
7
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1answer
85 views
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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0answers
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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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1answer
266 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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1answer
64 views
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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1answer
531 views
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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1answer
434 views
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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59 views
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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1answer
115 views
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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1answer
56 views
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
106 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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1answer
171 views
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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1answer
102 views
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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2answers
61 views
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.
...
