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The next concept is that of an idealized consumer or household. A consumer is partially described by a consumption set X, which is a subset of
the commodity space. Elements x of X are ordered lists of quantities of
commodities consumed. If xk < 0 it indicates that commodity k is a labor
service being supplied. The other part of the description of a consumer is
the consumers preference relation on X, which is generally assumed
to be transitive, total, and reflexive. The relation x y is read x is at least
as good as y. The strict preference relation is defined by
xy
x y but not y x,
if
if
x y and y x.
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Technology
j=1 Yj
is convex.
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Resources
The third element in the description of an economy is the aggregate endowment R . We typically assume 0, but that is mainly a definition of
what it means to be a resource.
Allocations
n
E = (Xi , i )m
i=1 , (Yj )j=1 , .
i = 1, . . . , m
y j Yj
j = 1, . . . , n
xi = +
i=1
yj .
j=1
i
A natural question is whether allocations exist at all. Let X = m
i=1 X .
The question is whether X (Y + ) = . There are a couple of ways to
guarantee this. One is to assume 0 Y j (possibility of inaction) for each producer and that each consumer satisfies i X i . Then ( 1 , . . . , m , 0, . . . , 0)
is an allocation. If we dont wish to assume i X i , we might assume
the existence of x
i X i with x
i i , and assume that Y exhibits free
disposability. (There are other reasons we may make this assumption. Do
you see why it guarantees the existence of allocations?)
Efficiency
An allocation (
x1 , . . . , x
m , y1 , . . . , yn ) is inefficient3 if there is some other
allocation (x1 , . . . , xm , y 1 , . . . , y n ) such that
xi i x
i
3
for all i,
Or Pareto dominated
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and
xi i x
i
Private property
In an economy with the social convention of private property, the aggregate endowment and all the enterprises are wholly owned by the consumers.
To completely describe such an economy
and its property system A private
(
)
n
i i=1,...,m
ownership economy E is a list (Xi , i , i )m
i=1 , (Yj )j=1 , (j )j=1,...,n . Here
i is a list of consumer is initial private endowment of each commodity,
so
m
=
i,
i=1
ji
and
is the share of firm j owned by consumer i. These shares are nonnegative and sum to unity:
ji 0, for all i, j,
and
ji = 1 for all j.
i=1
Walrasian equilibrium
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and
p yj p y j for all y j Y j .
ji p
y j } and
x
i i xi for all xi Bi .
j=1
3. (Market clearing) (
x1 , . . . , x
m , y1 , . . . , yn ) is an allocation, that is,
m
i=1
8.1
x
i =
i=1
i +
yj .
j=1
Walrasian quasiequilibrium
Suggested references
[1] C. D. Aliprantis, D. J. Brown, and O. Burkinshaw. 1989. Existence and
optimality of competitive equilibria. New York: SpringerVerlag.
[2] K. J. Arrow and G. Debreu. 1954. Existence of an equilibrium for a
competitive economy. Econometrica 22(3):265290.
www.jstor.org/stable/1907353
[3] K. J. Arrow and F. H. Hahn. 1971. General competitive analysis. San
Francisco: HoldenDay.
[4] G. Debreu. 1956. Market equilibrium. Proceedings of the National
Academy of Sciences, U.S.A. 42(11):876878.
www.pnas.org/cgi/reprint/42/11/876
[5]
. 1959. Theory of value: An axiomatic analysis of economic equilibrium. Number 17 in Cowles Foundation Monographs. New Haven:
Yale University Press.
cowles.econ.yale.edu/P/cm/m17/m17-all.pdf
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[6]
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[11]
[12]
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