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Unformatted text preview: models: – Fire insurance pays if there is a fire.
– Bets against the Lakers must be paid when they win. Lecture 17 Lecture 17 Plan for the Rest of the Lecture • Contingent commodities are goods that are
delivered depending upon the state of the world. Lecture 17 2 5 – Walras’ exchange economy with many markets
but no production.
– An economy with two production goods and
two factors of production.
Lecture 17 Econ 11--Spring 2001 6 1 Prof. Jay Bhattacharya Econ 11--Spring 2001 Market Demand in Walras’
Economy Walras’ Exchange Economy • Each person picks his optimal consumption bundle
to maximize utility
• This leads to n individual demand functions for
each individual which are a function of all market
– D1k(P1…Pn), D2k(P1…Pn),… Dnk(P1…Pn)
• The sum of individual demand functions yields n
market demand functions:
– D1(P1…Pn), D2(P1…Pn),… Dn(P1…Pn) • n goods (x1…xn) in fixed supply, S1…Sn.
• Each good has an associated price, P1…Pn.
• There are K people and each take prices as
• “Income” is the value of each person’s
holdings at market prices n
– Person k’s income is I k = ∑ Pi S ik
– Person k’s budget constraint is: Lecture 17 Econ 11...
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- Perfect Competition