... deciding what relevance these have to the validity of the statements. What equilibrium is achieved when we use the simplest possible model? - a pure exchange economy A pure exchange economy is an economy with no production - each agent starts with an endowment of goods that they can then trade. In order to build a useful model, we will limit ourselves to two consumers - A and B, and two goods - good 1 and good 2. Both start with an endowment - consumer A with ?A = (?A1,?A2) and consumer B with ?B = (?B1,?B2). Both will end up with a final allocation of goods xA and xB. The first condition that we assume is that consumers cannot consume more than there is or a particular good. I.e. the final allocations of each good cannot add up to more than the sum of the endowments for each good. More ...

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