Handout On General Equilibrium

Handout On General Equilibrium - ECONOMICS 201 Notes on...

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Unformatted text preview: ECONOMICS 201 Notes on General Equilibrium G. Jehle Consider a two-person exchange economy. Agent 1 has utility u 1 ( x,y ) and endowment e 1 = ( x 1 e ,y 1 e ). Agent 2 has utility u 2 ( x,y ) and endowment e 2 = ( x 2 e ,y 2 e ). Properties of Core Allocations If A is an allocation in the core of the economy with endowments e = ( e 1 , e 2 ), then A x 1 y 1 , x 2 y 2 and it is 1. In the box x 1 + x 2 = x 1 e + x 2 e y 1 + y 2 = y 1 e + y 2 e 2. Inside the lense u 1 ( x 1 ,y 1 ) u 1 ( x 1 e ,y 1 e ) u 2 ( x 2 ,y 2 ) u 2 ( x 2 e ,y 2 e ) 3. On the Contract Curve MRS 1 ( x 1 ,y 1 ) = MRS 2 ( x 2 ,y 2 ) . 1 Market Systems Behavior Agents are self-interested, utility-maximizers. Institutions All transactions are conducted through impersonal, perfectly competi- tive markets on which no agent has any significant influence individually. Agents are therefore price-takers on every market....
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Handout On General Equilibrium - ECONOMICS 201 Notes on...

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