exchange-ho

# exchange-ho - General Equilibrium without Production...

This preview shows pages 1–11. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: General Equilibrium without Production Exchange (Chapter 31) May 19, 2009 Endowment Economy ◮ Suppose that there are Two consumers, A and B. and Two goods, goods 1 and 2. ◮ Their endowment of both goods are given by Endowment ω A = ( ω A 1 ,ω A 2 ) and ω B = ( ω B 1 ,ω B 2 ) ◮ For example, ω A = (6 , 4) and ω B = (2 , 2). ◮ This implies that the total endowment of good 1 is ω A 1 + ω B 1 = 6 + 2 = 8 and the total of good 2 is ω A 2 + ω B 2 = 4 + 2 = 6. ◮ Let x A = ( x A 1 , x A 2 ) and x B = ( x B 1 , x B 2 ) be the allocations or consumptions of A and B, respectively. Feasible Allocation ◮ ( x A , x B ) is feasible if Feasible Allocation x A 1 + x B 1 ≤ ω A 1 + ω B 1 and x A 2 + x B 2 ≤ ω A 2 + ω B 2 ◮ That is, the allocation is feasible if it use at most the aggregate endowment. ◮ We can depict all feasible allocations in so called Edgeworth Box. Edgeworth Box Z A ( , ) 6 4 Z B ( , ) 2 2 O A O B 6 8 4 6 2 2 The endowment allocation The Endowment Allocation Edgeworth Box Feasible Reallocations O A O B Z Z 1 1 A B . x A 2 Z Z 2 2 A B . x A 1 x B 1 x B 2 Preferences of A Adding Preferences to the Box Z 2 A Z 1 A x A 2 x A 1 M o r e p r e f e r r e d For consumer A. O A Preferences of B Adding Preferences to the Box x B 2 x B 1 M o r e p r e f e r r e d For consumer B. O B Z 2 B Z 1 B Preferences of B Adding Preferences to the Box Z 2 B Z 1 B x B 1 x B 2 M o r e p r e f e r r e d For consumer B. O B Putting both of them together Edgeworth’s Box Z 2 A Z 1 A x A 2 x A 1 O A Z 2 B Z 1 B x B 1 x B 2 O B Feasible Allocation ◮ Pareto-improving allocation = a feasible allocation that improves the welfare of a consumer without reducing the welfare of another ....
View Full Document

## This note was uploaded on 12/26/2011 for the course ECON 100B taught by Professor Kilenthong during the Fall '08 term at UCSB.

### Page1 / 34

exchange-ho - General Equilibrium without Production...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online