Applied General Equilibrium models

Question 1

What are the standard assumption of GE?

Answer 1

Production technology and the consumer preference set are convex

Question 2

What are equilibrium conditions?

Answer 2

Given a set of prices (price signals), there is no excess demand, no positive profits and no excess income

Question 3

Mention the first approach of GE models

Answer 3

Dual approach is to present the supply and demand functions, which are functions of prices.

Question 4

Mention the second approach of GE models

Answer 4

This approach represents the behaviour directly, that is, producers maximize profits subject to their production technology set, and consumers
maximize utility subject to their budget constraints with given prices and income

Question 5

Mention the assumptions of CGE format

Answer 5

-Two types of commodities: goods and factors;
-Every producer supplies a single good according to constant return to scale production
function (ensuring zero profit condition);
-Each producer produces only one good that requires factors and/or intermediate goods
that require inputs of factors;
-Factors are not produced. Factors are the endowments of consumers in nonzero
amounts;
-There are no endowments of goods;
-Consumers have continuous, strictly quasi-concave, and non-satiated utility function.

Question 6

What does the Nigishi theorem says?

Answer 6

a competitive equilibrium can be represented through a welfare optimum with nonzero welfare weights, which are such that all consumers satisfy their
budget constraints.

Question 7

How can Negihi format can be represented?

Answer 7

The welfare program aims to optimize overall welfare by considering a weighted sum of consumers’ utility, while ensuring that commodity constraints and production technologies are accounted for. Welfare weights are assigned to maintain budget constraints for each consumer.