Economics 604: Microeconomics
Deborah Minehart & Rachel Kranton
Updated: May 12, 2005
Lecture 1: January 27, 2005
General Equilibrium Model (GE)
Primitives: agents (consumers and rms), preferences, technologies and resources.
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 ,
Notes on CD and CES Utility Functions
Consider a utility function of the form:
u(x1 , x2 ) = x x .
Assuming we have an exchange economy, wealth is:
w = 1 p1 + 2 p2 .
L = x x + (w x1 p1 x2 p2 ).
First Order Co
economies for any N . The set of Walrasian equilibria are the same for each N -replica
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,