DSE 2016 doubt

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DSE 2016 doubt

Halflife

Q17) Answer : A
Its A because the allocation : (4,4) & (2,0) for agents 1 and 2 is a point of competitive equilibrium right?
Or is there any other reason (since endowments are not given so I'm not able to think of any other reason.)?
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Re: DSE 2016 doubt

Abhitesh
Answer seems to be B.
First find the set of pareto-optimal(PO) allocations.
Then take any value of px with py=1 and solve optimization prob. for both agents.
Check if your optimal soln. clears market. If yes then prices are competitive.
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Re: DSE 2016 doubt

Halflife
But how would I do that without their respective endowments? I mean I'd need their incomes to do that right?
By the way the answer is given as A in the key that I'm following.
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Re: DSE 2016 doubt

Abhitesh
Take it M1 and M2. If p<1 then (x2=6 and y2=0) and (x1 = M1/p+1 =y1) will be optimal which doesn't clears market.
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Re: DSE 2016 doubt

Rajesh
According to this logic, then if, say M2= Rs. 10,then:

If p<1, x2=5 (we can't assume his income to be sufficient to buy 6 units wholly)
and so (x1,y1)= (1,1)(still again depend on income of M1)

so, shouln't it be option d in that case?
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