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A Course in Microeconomic Theory$
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David M. Kreps

Print publication date: 2020

Print ISBN-13: 9780691202754

Published to Princeton Scholarship Online: May 2021

DOI: 10.23943/princeton/9780691202754.001.0001

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PRINTED FROM PRINCETON SCHOLARSHIP ONLINE (www.princeton.universitypressscholarship.com). (c) Copyright Princeton University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in PRSO for personal use.date: 24 July 2021

Pure exchange and general equilibrium

Pure exchange and general equilibrium

Chapter:
(p.186) (p.187) Chapter Six Pure exchange and general equilibrium
Source:
A Course in Microeconomic Theory
Author(s):

David M. Kreps

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691202754.003.0006

This chapter focuses on situations of pure exchange, where consumers wish to exchange bundles of goods they hold at the outset for other bundles they will subsequently consume. It uses this setting to introduce the theory of price-mediated market transactions and, more particularly, the theory of general equilibrium, in which all markets in all goods are considered simultaneously. Following in the footsteps of generations of classical microeconomists, the chapter makes the assertion that in many situations of pure exchange, the consumer will wind up at the consumption allocation part of some Walrasian equilibrium for the economy, and insofar as there are markets in these goods, prices will correspond to equilibrium prices. One thing that the concept of a Walrasian equilibrium does not provide is any sense of how market operates. There is no model here of who sets prices, or what gets exchanged for what, when, and where.

Keywords:   pure exchange, consumers, goods, price-mediated market transactions, general equilibrium, markets, Walrasian equilibrium, equilibrium prices

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