Question

When it comes to the History of Economic Thought: A Critical Perspective by E.K Hunt

Jevons demonstrated that consumers’ demand behavior could be derived from consumer’s utility maximization. In a context of two commodities (X and Y), give a simple and brief proof that a utility-maximizing consumer would exchange the two commodities up to the point where the relative ratio of marginal utility between the two commodities exactly equals their relative price ratio. What is General Equilibrium? Explain how Walras set up the general equilibrium model. What difficulties did Walras have in order to demonstrate that market forces could automatically correct disequilibrium?

Answer 1

When it comes to the History of Economic Thought: A Critical Perspective by E.K Hunt

Jevons demonstrated that consumers’ demand behavior could be derived from consumer’s utility maximization. In a context of two commodities (X and Y), give a simple and brief proof that a utility-maximizing consumer would exchange the two commodities up to the point where the relative ratio of marginal utility between the two commodities exactly equals their relative price ratio. What is General Equilibrium? Explain how Walras set up the general equilibrium model. What difficulties did Walras have in order to demonstrate that market forces could automatically correct disequilibrium?

Answer: detailed explanation is given below

In case of proving MUc/pc=MUf/pf = MU=p

Here I take a example of two commodity cake and fruit and prove the condition given in question. In 2nd part of question walras general equilibrium model has been explained in detail.

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