Answer to Question #67015 in Microeconomics for Rohan Garg

Question

Consider a perfectly competitive exchange economy with no production, and two different goods 1 and 2. Let p1 and p 2 be the prices of the· goods. The economy is populated by two people A and B. A's initial endowment of the two goods is given by (w1,w2), and B's initial endowment is (w3,w4) A can choose any bundle (x1,x2) and B can choose any bundle(x3,x4). In this pure exchange economy write out the conditions for a Walrasian equilibrium. Show that for such an economy for any equilibrium set of prices that the absolute price level is indeterminate.