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 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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24 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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30 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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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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31 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,~ ...
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30 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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52 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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31 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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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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34 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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57 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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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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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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262 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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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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217 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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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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92 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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103 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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267 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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122 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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177 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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140 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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80 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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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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172 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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1answer
485 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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365 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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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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102 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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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
90 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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169 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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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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752 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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96 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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445 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 ...