In general equilibrium, it is possible to analyse simultaneously: a. Up to three markets b. Up to (") markets c. Up to two markets d. There is no upper limit

In general equilibrium, it is possible to analyse simultaneously:

a. Up to three markets
b. Up to (") markets
c. Up to two markets
d. There is no upper limit

Solutions

Expert Solution

The right option is (d).

Explanation:

General equilibrium is a framework in which all the markets of an economy and all the economic agents are in simultaneous equilibrium. Therefore it is a framework in which consumers maximize utility and producers maximize profit. As opposed to partial equilibrium analyses, where we consider only a single market in equilibrium, in general equilibrium we consider all the markets existing in an economy. Therefore general equilibrium concerns itself with the interdependence of all the markets. All the markets, i.e., factor market, product market along with the goals of economic agents must clear which gives rise to the equilibrium price and quantities in all the markets such that there is neither excess supply or demand. Therefore in general equilibrium analysis, there is no upper limit to the number of markets but simply all the markets existing in an economy must be in simultaneous equilibrium.

The right option is (d).

Junaid answered 1 year ago

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