Intermediate Microeconomics · free preview
Trade and Walrasian Equilibrium
Competitive trade from the endowment has each consumer maximizing at common prices, the worked economy clearing at equal prices with both consuming (5, 5) and utility rising from 16 to 25, Walras' law tying excess demands together, and only relative prices determined, one good the numeraire.
1. The price-taking solution
The price-taking solution
2. The equilibrium checks
The equilibrium checks
3. Walras' law and existence
Walras' law and existence
4. From two goods to the economy
From two goods to the economy
5. The numeraire
Why does only the price ratio matter in the exchange system?
6. The equilibrium price
What is the equilibrium relative price in the worked economy?
7. Walras' law
What exactly does Walras' law state about market excess demands?
8. The core convergence
What happens to the core as consumers replicate?
9. Endowment income
At prices 1 and r of 1, compute A's endowment income, 8 plus 2, and write the number.
10. Utility after trade
Compute each consumer's equilibrium utility, 5 times 5, and write the number.
11. A's demand at the prices
At prices 1 and 1 with A's income of 10, what does A demand for u equal xy?
12. B's budget and choice
What is B's endowment income at prices 1 and 1, and what does B demand?
13. The market-clearing trades
What net trades clear both markets at the equilibrium?
14. The measured gains
By how much does each consumer's utility rise from endowment to equilibrium?
15. B's endowment income
At prices 1 and 1, compute B's endowment income as 2 plus 8, and write the number.
16. The utility gain from trade
Compute the utility gain from endowment 16 to equilibrium 25, and write the number.
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