Question:
Which one of the following statements is CORRECT for the general equilibrium analysis for a two-person and two-good pure exchange economy?
Which one of the following statements is CORRECT for the general equilibrium analysis for a two-person and two-good pure exchange economy?
Show Hint
In general equilibrium, prices and allocations are determined simultaneously within the system.
Updated On: Jun 5, 2026
- Some points on the contract curve may not be Pareto optimal.
- Endowment point cannot be on the boundary of the Edgeworth Box.
- Equilibrium prices are endogenously determined.
- In equilibrium, net demand for a good is either positive or negative but cannot be zero.
Show Solution
Verified By Collegedunia
The Correct Option is C
Solution and Explanation
Step 1: Understand pure exchange economy.
A two-person and two-good pure exchange economy studies exchange of fixed quantities of two goods between two individuals.
Step 2: Understand Edgeworth Box.
The Edgeworth Box represents all feasible allocations of the two goods between the two consumers.
Step 3: Analyze option (A).
The contract curve consists of Pareto optimal allocations.
Therefore, statement (A) is incorrect.
Step 4: Analyze option (B).
The endowment point can lie inside the Edgeworth Box or on its boundary.
Therefore, statement (B) is incorrect.
Step 5: Analyze option (C).
In general equilibrium analysis, equilibrium prices are determined within the model through demand-supply interaction.
Thus, prices are endogenously determined.
Therefore, statement (C) is correct.
Step 6: Analyze option (D).
In equilibrium, markets clear and net demand can be zero.
Therefore, statement (D) is incorrect.
Step 7: Final conclusion.
\[ \boxed{\text{Equilibrium prices are endogenously determined.}} \]
Hence, the correct answer is option (C).
A two-person and two-good pure exchange economy studies exchange of fixed quantities of two goods between two individuals.
Step 2: Understand Edgeworth Box.
The Edgeworth Box represents all feasible allocations of the two goods between the two consumers.
Step 3: Analyze option (A).
The contract curve consists of Pareto optimal allocations.
Therefore, statement (A) is incorrect.
Step 4: Analyze option (B).
The endowment point can lie inside the Edgeworth Box or on its boundary.
Therefore, statement (B) is incorrect.
Step 5: Analyze option (C).
In general equilibrium analysis, equilibrium prices are determined within the model through demand-supply interaction.
Thus, prices are endogenously determined.
Therefore, statement (C) is correct.
Step 6: Analyze option (D).
In equilibrium, markets clear and net demand can be zero.
Therefore, statement (D) is incorrect.
Step 7: Final conclusion.
\[ \boxed{\text{Equilibrium prices are endogenously determined.}} \]
Hence, the correct answer is option (C).
Was this answer helpful?
0
0
Top IIT JAM EN Microeconomics Questions
- A competitive firm can sell any output at price π = 1. Production depends on capital alone, and the production function π¦ = π(πΎ) is twice continuously differentiable, with
π(0) = 0, π β² > 0, π β²β² < 0, \(lim\\_{ πΎβ0 }\) π β² (πΎ) = β , \(lim\\_{ πΎββ}\) π β² (πΎ) = 0.
The firm has positive capital stock πΎΜ to start with, and can buy and sell capital at price π per unit of capital. If the firm is maximizing profit then which of the following statements is NOT CORRECT? - Consider a 2-agent, 2-good exchange economy where agent π has utility function π’π (π₯π , π¦π ) = max{π₯π , π¦π }, π = 1,2. The initial endowments of goods π and π that the agents have are (π₯Μ Μ 1Μ , π¦Μ Μ 1Μ , π₯Μ Μ 2Μ , π¦Μ Μ 2Μ ) = (25, 5, 5, 5). Then select the CORRECT choice below where the price vector (ππ₯, ππ¦) specified is part of a competitive equilibrium.
- For a firm operating in a perfectly competitive market which of the following statements is CORRECT?
- A firm is operating in a perfectly competitive environment. A change in the market condition leads to an increase in the firmβs profit by an amount K. Which of the following describes the change in the Producerβs Surplus due to the above change in the market condition?
- Two people, 1 and 2, are engaged in a joint project. Person πβ{1,2} puts in effort π₯π (0β€ π₯π β€ 1), and incurs cost πΆπ (π₯π ) = π₯π . The monetary outcome of the project is 4π₯1π₯2 which is split equally between them. Considering the situation as a strategic game, the set of all Nash Equilibria in pure strategies is
View More Questions
Top IIT JAM EN General equilibrium and welfare Questions
- Consider a 2-agent, 2-good exchange economy where agent π has utility function π’π (π₯π , π¦π ) = max{π₯π , π¦π }, π = 1,2. The initial endowments of goods π and π that the agents have are (π₯Μ Μ 1Μ , π¦Μ Μ 1Μ , π₯Μ Μ 2Μ , π¦Μ Μ 2Μ ) = (25, 5, 5, 5). Then select the CORRECT choice below where the price vector (ππ₯, ππ¦) specified is part of a competitive equilibrium.
- Consider a 2-agent, 2-good economy with an aggregate endowment of 30 units of good π and 10 units of good π. Agent π has utility function
ui (xi , yi ) = max {xi , yi }, π = 1, 2.
Select the choices below in which the specified allocation of the goods to the agents is Pareto optimal for this economy - An economy is characterized by the Solow model, with the production function y = βk, where y is output per worker and k is capital per worker. The steady-state level of output per worker is \(y^{ss}=A^{1/(1-\alpha)}(\frac{\gamma}{\delta})^{\alpha/(1-\alpha)}\) where Ξ, Ξ³, Ξ΄ and a denote productivity, share of output invested (in %), depreciation rate (in %) and capital's share in income (in fraction), respectively. Suppose that A = 1, k = 400, \(\gamma\) = 50%, Ξ΄ = 5% and \(\alpha\)= 1/2. Then the current output, using the above information, is
- Which of the following statements is NOT correct under the IS-LM (Fixed Price) model?
- Consider a pure exchange economy with two goods x and y. Ravi and Suraj are two individuals with utility functions $U_R = \beta log(xy)$ and $U_s = (x/y)^{\alpha},$ respectively. The endowments are $x_R$ and $y_R$ for Ravi and $x_s$ and $y_s$ for Suraj such that $x_R$+$x_s$ = A and $y_R + y_s= B$. Then their contract curve is
View More Questions
Top IIT JAM EN Questions
- A competitive firm can sell any output at price π = 1. Production depends on capital alone, and the production function π¦ = π(πΎ) is twice continuously differentiable, with
π(0) = 0, π β² > 0, π β²β² < 0, \(lim\\_{ πΎβ0 }\) π β² (πΎ) = β , \(lim\\_{ πΎββ}\) π β² (πΎ) = 0.
The firm has positive capital stock πΎΜ to start with, and can buy and sell capital at price π per unit of capital. If the firm is maximizing profit then which of the following statements is NOT CORRECT? - Let π, πβΆβ β β be defined by
Then - Let π be a feasible set of a linear programming problem (π). If the dual problem of (π) is unbounded then
- Which of the following is NOT CORRECT?
- Among the following statements which one is CORRECT?
S1: π₯2+π¦2=6 is a level curve of π(π₯, π¦)=\(\sqrt{π₯^2+π¦^2}\)βπ₯2βπ¦2+2
S2: π₯2βπ¦2=β3 is a level curve of π(π₯, π¦) =\(πβ{^π₯}^{2} π{^y}^{2}\)+π₯4β2β2π₯2π¦2+y4
View More Questions