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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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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834 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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100 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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494 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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130 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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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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201 views

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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283 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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628 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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163 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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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?
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Question regarding demand schedule and equilibrium consumption [closed]

Please refer to the two images posted at this link: http://imgur.com/a/si3ko Referring to Page 2, I'm not quite sure what the author is trying to say regarding the two bracketed portions. Considering ...
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References on mathematically rigorous general equilibrium theories

I'm looking for a relatively recent survey on the state of the art for mathematical general equilibrium. I'm especially interested in questions of uniqueness, stability and dynamics. (I'm planing on ...
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General equilibrium allocation with “altriustic” utilities

Has any work been done on market allocations where market participants have utility functions that depend on other players' allocations? For example, suppose I have a general equilibrium model with ...
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399 views

How does Brouwer's fixed point theorem relate to Walrasian equilibrium?

I am trying to understand Walrasian equilibrium and its connection to fixed points, especially how we can apply Brouwer’s fixed point theorem to the notion of Walrasian equilibrium. I understand the ...
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1answer
355 views

General Equilibrium - Mas Colell Problem 17.D.2

Taken from Chapter 17 of Mas Colell "Microeconomic Theory" Consider an exchange economy with two commodities and two consumers. Both consumers have homothetic preferences of the constant ...
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345 views

Application of Intermediate Value Theorem for General Equilibrium

Here's a problem restated from Ross Starr's General Equilibrium Theory. Consider a two-commodity economy with an excess demand function $Z(p)=(Z_1(p),Z_2(p))$. The price space is $p \in P = \left \{...
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About Lindahl equilibrium and Pareto Optimality

Let an economy with 20 consumers, one private good $x_2$ and one public good $x_1$. The public good is produced using the private good as input with the following technology $x_1=g(z)=z^{1/2}$, where $...
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271 views

Solving Stochastic Dynamic Optimization Problems: A difficulty with Lagrange Multipliers

In Wickens' Macroeconomics book, in page 552, the author states the following: «The stochastic problem can be solved using the method of Lagrange multipliers, but there is a problem with this ...
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235 views

Question about Equilibrium Price

To find the equilibrium price I understand you set $$ Q^s = Q^d $$ and then solve for p. But as P is not indpendently labeled in $$Q^d$$ I am slightly confused how you would go about writing this ...
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Is the marginal cost the same for every firm in a perfectly competitive market?

Spin-off from: market equilibrium quantity $\ne$ firm profit maximising quantity? Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit ...
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339 views

market equilibrium quantity $\ne$ firm profit maximising quantity?

Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit maximising quantity $Q_f$ as illustrated below: I guess any firm in the market would ...
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961 views

Why goods prices are normalized in each period in growth models?

As it is known, in simple economic growth models such as the Solow or the Ramsey model, all goods prices are set equal to 1 in each period. Also, as we known from general equilibrium theory, ...
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Macroeconomics and equilibrium

Preliminary note: I have nearly zero economical background, I am a physicist and my question is probably very naive, but I would like a clear and simple explanation. If I am not wrong, the global ...
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Macroeconomics: Aggregate Demand, Equilibrium Dynamics and Expenditure Multipliers

I am having a hard time with the following economic questions (See attached). Here is my approach: Note about the curves: The graph below depicts an economy where a decline in aggregate demand has ...
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1answer
334 views

Doubt regarding Walrasian equilibrium with complements for both agents

There are two goods $1,2$ and two agents $ 1,2 $. Both have the utility function $ u_{i}=\min({x_{1i},x_{2i}}) $ for agent $i$ .The endowments are $(1,3)$ and $(3,1)$ for agent $1$ and $2$ ...
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Pareto set and contract curve

I am having some troubles in distinguishing, from a theoretical point of view, between contract curve and Pareto set. I have looked around books and internet, and I have found that contract curve ...
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Why is the production possibility set convex?

I'm studying International Trade and came across this question: Suppose a specific factor model where the global production of something is given by $Q_{w}=Q_{1}(.) + Q_{2}(.)$, with $Q_{1}, Q_{2}$ ...
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Calculating price in a pure exchange economy

The problem is simple, I'm not really sure of my answer though. Consider an economy where there are two consumers and two goods: $$U_1(x_{11}, x_{21}) = x_{11}$$ $$U_2(x_{12}, x_{22}) = x_{22}$$ $...
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Computing the core in a transferrable utility game

An allocation $x^{*}$ is said to have the core property in a game of $N$ players if there is no coalition $S \subseteq N$ that can improve upon $x^{*}$. The core of a game is the set of allocations ...
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541 views

Writing the core as the intersection of pareto efficient outcomes of all coalitions

I have been reviewing general equilibrium models and was trying to find an efficient method for computing the core of a cooperative game. I was taught this topic in a very poor way so I believe I ...
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Simple Macroeconomics problem

Suppose an agent wants to maximize: $Max \sum_{t=0}^\infty \beta^t \ln(C_t) $ s.t. $C_t + I_t = Y_t$ $Y_t = K_t$ $K_{t+1} = K_t^\alpha I_t^\gamma$ where $\alpha, \gamma >0$ and $\alpha + \...
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251 views

Pure Exchange Economy

I need help drawing the Pareto Set for an Edgeworth economy. I know how to find the contract curve given an allocation, and I think that ends up being the competitive equilibria, but drawing the ...
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How does supply and demand determine price for the following scenario?

Two individuals are stranded on an island. Bob and Jill. By themselves they can produce: Bob: 5 fish & 5 coconuts Jill: 5 fish & 5 coconuts If they specialize and trade, they can produce: ...
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General Equilibrium Modelling

I have a question regarding GE modelling. The firm's problem is to: $$ \max\pi=pf(k,l)-wl-rk $$ If this is true, we choose $l$ and $k$ to maximize the difference between costs and revenues. This ...
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What is an equilibrium generated by replication?

Sorry this might be a little too rudimentary for you, but I'm not an Econ background. When I was doing exercises for MGW chapter 17 "Positive Existence of Equilibrium" I came across the following ...
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A stable equilibrium with demand and supply?

My doubt pertains to something that is mentioned in the book by Koutsoyiannis for microeconomics (in the chapter for general equilibrium). http://www.upload.ee/image/5306829/1.jpg http://www.upload....