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Question from Past Microeconomics Qualifying ExamEdit

Fall 2005 - Section I, Question one, George Mason University

T, F, U. State first whether the following statements are true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.

If there are two goods, x and y, and all consumers have the same linear utility function, a general equilibrium still exists.


Uncertain. General equilibrium in this case will only exist if prices induce everyone to consume their own endowment. This is very unlikely and a general equilibrium would probably not exist in this instance.

Other conditions would also need to be met. For instance, there would need to be a large number of consumers so that strategic pricing behavior is eliminated. Also, the utility function needs to be defined such that at least one coefficient is non-zero. And the Endowments must be finite, though they need not be identical.

(See Bryan Caplan's Week 2 Notes, Section II B)

Other QuestionsEdit

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