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by: Ms. Ari Lesch


Marketplace > Iowa State University > Economcs > ECON 101H > HONORS PRIN MICROEC
Ms. Ari Lesch
GPA 3.53


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Class Notes
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This 10 page Class Notes was uploaded by Ms. Ari Lesch on Saturday September 26, 2015. The Class Notes belongs to ECON 101H at Iowa State University taught by Staff in Fall. Since its upload, it has received 27 views. For similar materials see /class/214440/econ-101h-iowa-state-university in Economcs at Iowa State University.




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Date Created: 09/26/15
The agents Ann I I I I The housmg market Bob I I I Carol I I I I Avery practical example o Dan I I g I I Ed I I I I Initial Endowments The Envy Graph 3 g E g E Initial Allocation 0 Am Eb cm I Dan Ed Another Allocation Another Allocation 333 3 Yetanother age Them Graph as age Allocation The Envy Graph Sorne definitions A housing economy consists ofa set ofn houses and n individuals E B Each individual owns one house and has a preference ranking over the houses An allocation is a distribution or assignment of one house to each individual In particular the D C initial allocation assigns to each individual the house heshe initially owns What is wrong with this allocation Sorne definitions cont Note An allocation x is inef cient if there is An allocation is efficient if and only if its another allocation y such that no agent envygraph has no cycles prefers the house he gets at x to the the house he gets aty An allocation x is efficient if it is not inefficient Suppose that house prices are as follows 0 Price 10 10 10 10 10 What are the houses that Ann can afford BAnn10gt10101010I I I I I What is the house that Ann would like to buy at these prices DAm1010101010 I Suppose that house prices are as follows 0 Price 10 10 10 10 10 What are the houses that Bob can afford BBob10gt10gt10gt10gt10 I I I I I What is the house that Bob would like to buy at these prices DB0b1010101010 I Market demand This is not an allocation There is excess demand for Red and Green and there is excess supply of blue and pink Dan s Budget Dan s optimal house 3 Let S change pr1ces I I I I I I I I I I Prices 5 20 20 10 5 Prices 5 20 20 10 5 Ann s Budget 7 A Bob s Budget I Ann s optimal house Bob s optimal house 17 12 I I I I I I I I I I Prices 5 20 20 10 5 Prices 5 20 20 10 5 Carol s Budget Carol s optimal house Prices Ed s Budget Ed s optimal house Prices This is not an allocation I 7 Prices Ann s Budget Ann s optimal house Let s change prices again I I I 20 10 5 Prices Bob s Budget Bob s optimal house I 7 Prices Carol s Budget Carol s optimal house III 397 5 Prices Dan s Budget Dan s optimal house Prices Ed s Budget Ed s optimal house Prices This is not an allocation Let s change prices quot agam I I I I I I I I I I Prices 7 10 10 10 6 Prices 7 10 10 10 6 Ann s Budget 7 A Bob s Budget Ann s optimal house Bob s optimal hous 29 3D I I I I I I I I I I Prices 7 10 10 10 6 Prices 7 10 10 10 6 Carol s Budget Carol s optimal house Dan s Budget Dan s optimal hous Prices Ed s Budget Ed s optimal house This is an allocation 34 This allocation is efficient The previous allocation is a competitive allocation Because it can be supported by prices 7 There are prices for the houses such that the allocation assigns to each agent the best house heshe can afford 7 Note the prices that support the competitive allocation are not unique But the allocation is N Fquot How do we find the competitive allocation Build a graph Where each agent point to the owner of his most preferred house If there is a cycle let its members trade according to it and go back to l with the remaining agents and houses If there is no cycle stop and each remaining agent gets it own house In our example Second iteration E


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