Flashcards in Lecture 5 - Walrasian Equilibrium and Welfare theorems in Economies with production Deck (7)
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
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
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.
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
What is the excess demand vector equal to
Excess Demand = Demand - Supply
What must excess demand be equal to in order to find a walrasian equilibrium