ADVANCED MICROECONOMICS
Problem Set
Pure exchange equilibrium
Solve the following problems.
1. Consider the following pure exchange economy.
�1 = ln �11 + 0.1�12 �1 = (20, 30)
�2 = �0.25 0.75
21 �22 �2 = (10, 20)
a. Find the equilibrium prices.
b. Calculate the equilibrium allocation �∗ at the equilibrium price �∗ and specify the net
demands for each commodity across the consumer.
c. Do you see any connection in the ratio in which consumer are exchanging the
commodities and the price ratio?
2. Consider the following pure exchange economy.
�1 = 2 �11 + ln �12 �1 = (20, 30)
�2 = �0.2 0.8
21 �22 �2 = (10, 20)
a. Find the equilibrium prices.
b. Calculate the equilibrium allocation �∗ at the equilibrium price �∗ and specify the net
demands for each commodity across the consumer.
c. Do you see any connection in the ratio in which consumer are exchanging the
commodities and the price ratio?
3. Find the equilibrium prices for the following pure exchange economy.
�1 = �11 + �0.5
12 �1 = (20, 30)
�2 = �0.2 0.8
21 �22 �2 = (10, 20)
4. Find the equilibrium prices for the following pure exchange economy.
�1 = �0.2 0.4 0.4
11 �12 �13 �1 = (10, 20, 10)
�2 = �0.1 0.5 0.4
21 �22 �23 �2 = (20, 10, 20)
PALLAVI GUPTA
Consider the following pure exchange economy:
� 1−�1
�1 = �111 �12 �1 = (�11 , �12 )
� 1−�2
�2 = �212 �22 �2 = (�21 , �22 )
Following table provides the values of �1 , �2 , �11 , �12 , �21 , and �22 . Using them, please calculate the
equilibrium prices. Check your answers with the solution provided.
�∗�
Q no. �� �� ��� ��� ��� ���
�∗�
9
2 0.3 0.6 5 5 5 5
11
5
3 0.2 0.6 4 5 6 5
7
25
4 0.2 0.8 2 5 8 5
16
31
5 0.2 0.8 5 3 5 7
25
37
6 0.2 0.8 5 1 5 9
25
17
7 0.9 0.8 5 5 5 5
3
31
8 0.5 0.8 4 6 6 4
16
2
9 0.2 0.1 0 10 10 0
9
10 0.5 0.5 4 4 6 6 1
PALLAVI GUPTA