Reading questions -General Equilibrium
A. Arrow and Debreu (1954). Existence of an Equilibrium for a
Competitive Economy
1. Why is the investigation of the existence of solutions of a system of
simultaneous equations important? Explain.
‘The view that the competitive model is a reasonably accurate description
of reality (…) presupposes that the equations describing the model are
consistent with each other.’ Blz. 265 meaning that the setup model and
equations can only be representative of the economy if the equations
together give a solution.
2. In which ways their study is different from that of A. Wald’s?
Wald had made separate models for production and exchange, whereas
these concepts are integrated in one model in this study. This makes the
assumptions to be made weaker, but gives the possibility of (a simplified)
structure of proofs.
3. What are the assumptions they make in this study? What are the reasons
of making such assumptions?
They do this to demarcate the domain they investigate. The assumptions
they make are weaker, but closer to economic reality, because of the
inclusion of circular flow of income and an integrated model.
4. What is the purpose of section 1?
To describe a model of a competitive economy and explain the
assumptions made to set this up. ‘In this section, a model of a competitive
economy will be described,
and certain assumptions will be made concerning the production and
consump-
tion units in the economy. The notion of equilibrium for such an economy
will
be defined, and a theorem stated about the existence of this equilibrium.’
Blz. 266
5. What is the purpose of section 2?
‘In this section, the concept of an abstract economy, a generalization of
that of a game, will be introduced, and a definition of equilibrium
given.’blz. 272
According to a game theory analyzing the effects of the choices of one
agent.
6. Why do the authors end with a historical note?
They summarize the works that have been done on this subject and field
and which conclusions these yielded. They give proof of what the authors
build upon, to give their work more credibility/plausibility. The authors
summarized what break-through which conclusions had been made and
what was missing.
A. Arrow and Debreu (1954). Existence of an Equilibrium for a
Competitive Economy
1. Why is the investigation of the existence of solutions of a system of
simultaneous equations important? Explain.
‘The view that the competitive model is a reasonably accurate description
of reality (…) presupposes that the equations describing the model are
consistent with each other.’ Blz. 265 meaning that the setup model and
equations can only be representative of the economy if the equations
together give a solution.
2. In which ways their study is different from that of A. Wald’s?
Wald had made separate models for production and exchange, whereas
these concepts are integrated in one model in this study. This makes the
assumptions to be made weaker, but gives the possibility of (a simplified)
structure of proofs.
3. What are the assumptions they make in this study? What are the reasons
of making such assumptions?
They do this to demarcate the domain they investigate. The assumptions
they make are weaker, but closer to economic reality, because of the
inclusion of circular flow of income and an integrated model.
4. What is the purpose of section 1?
To describe a model of a competitive economy and explain the
assumptions made to set this up. ‘In this section, a model of a competitive
economy will be described,
and certain assumptions will be made concerning the production and
consump-
tion units in the economy. The notion of equilibrium for such an economy
will
be defined, and a theorem stated about the existence of this equilibrium.’
Blz. 266
5. What is the purpose of section 2?
‘In this section, the concept of an abstract economy, a generalization of
that of a game, will be introduced, and a definition of equilibrium
given.’blz. 272
According to a game theory analyzing the effects of the choices of one
agent.
6. Why do the authors end with a historical note?
They summarize the works that have been done on this subject and field
and which conclusions these yielded. They give proof of what the authors
build upon, to give their work more credibility/plausibility. The authors
summarized what break-through which conclusions had been made and
what was missing.
