Questions about disequilibrium model #55
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I understand the normal Walrasian equilibrium model as follows: given the endowment and agents' optimization problem, find prices (treat wages as labor prices) to ensure that all endowments are used. |
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Replies: 1 comment 3 replies
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Hmm. That's an interesting perspective. I would maybe think about all of it this way. First, given endowments, prices, and optimization, find the amount of stuff that people want to trade (buy or sell). In the Walrasian model, set prices so that on all markets people want to buy and sell the same amount of stuff. In the disequilibrium model, prices are preset. Given these prices, we must determine the amount of stuff that is traded. These amounts are determined by rationing rules, which essentially say that you cannot force people to sell or buy things that they do not want to buy or sell. So if people want to buy less than sell, then the amount traded is the amount demanded. If people want to sell less than buy, then the amount traded is the amount supplied. Does this make sense? In any case let's talk more in class tomorrow. |
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Thank you so much for the reply! I think I realized what I was thinking was wrong, thanks to your helpful reply! In the simplest exchange economy, we can draw it in the edge box, a fixed price will fix the straight line that separates the box and 2 agents' indifference curves will touch it at the point where the curvature of the indifference curve will be totally different than the curvature of the point when the price clear the market. So no matter how you change the endowment, we can't ensure that the two indifferent curves touch each other with that specific price. Is my thought correct? |
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I think that's right! |
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Thank you very much! |
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Hmm. That's an interesting perspective.
I would maybe think about all of it this way. First, given endowments, prices, and optimization, find the amount of stuff that people want to trade (buy or sell).
In the Walrasian model, set prices so that on all markets people want to buy and sell the same amount of stuff.
In the disequilibrium model, prices are preset. Given these prices, we must determine the amount of stuff that is traded. These amounts are determined by rationing rules, which essentially say that you cannot force people to sell or buy things that they do not want to buy or sell. So if people want to buy less than sell, then the amount traded is the amount demanded. If people wa…