Economics 604: Microeconomics
Deborah Minehart & Rachel Kranton
Matthew Chesnes
Updated: May 12, 2005
1
Lecture 1: January 27, 2005
1.1
General Equilibrium Model (GE)
Primitives: agents (consumers and rms), preferences, technologies and resources.
The G
A Walrasian equilibrium is a set of prices for coconuts and labor/leisure, and then
consumptions of coconuts and leisure by Robinson, and production of coconuts using
labor, again by Robinson!
Robinsons problem from his consumer-self:
M axh,c h1 c ,
suc
Notes on CD and CES Utility Functions
7.2
Cobb-Douglas Utility
Consider a utility function of the form:
u(x1 , x2 ) = x x .
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Assuming we have an exchange economy, wealth is:
w = 1 p1 + 2 p2 .
Lagrangian:
L = x x + (w x1 p1 x2 p2 ).
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First Order Co
economies for any N . The set of Walrasian equilibria are the same for each N -replica
economy.
Theorem: Core Convergence. If x is in the core of every N -replica economy, then
x is a Walrasian equilibrium. This is the same as saying that as N gets big,