Lecture 5 - Walrasian Equilibrium and Welfare theorems in Economies with production Flashcards Preview

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Flashcards in Lecture 5 - Walrasian Equilibrium and Welfare theorems in Economies with production Deck (7)
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1

To be in walrasian equilibrium we need prices p such that at p:

- Allocation X has every agent choosing their optimal consumption bundle subject to their budget constraint.
- Production Y has every firm maximising profit subject to their production set.
- The markets clear

2

What are the exogenous variables in a production economy

- There are a set I of consumers or agents.
- A set J of goods
- A set M of firms

3

What is the budget constraint for consumers in a production economy equal to?

The value of goods they demand is no greater than the income they get plus the value of endowment plus any income from shares they own.

4

What are the conditions needed for a walrasian equilibrium in a production economy

1. For each consumer i in a set of I consumers, the choice bundle Xi solves the UMP:

2. For each firm m in a set of M firms bundle Ym solves the profit maximisation problem.

3. All markets clear: Demand = Endowment + Net output

5

What is the excess demand vector equal to

Excess Demand = Demand - Supply

6

What must excess demand be equal to in order to find a walrasian equilibrium

0

7

What is the method for finding the walrasian equilibrium in a production economy

- For each firm m in a set of m firms find the profit max production vectors of each firms as a function of prices Ym(p) and the profit P.Ym(p)
- For each consumer i in a set of I firms, find their optimal bundle s.t BC Xi(p) including profits from shares in the BC.
- Write down the market clearing condition Z(p)=0
- Find the price vector P that clears all markets.