General equilibrium theory | Econometric models

Fisher market

Fisher market is an economic model attributed to Irving Fisher. It has the following ingredients: * A set of divisible products with pre-specified supplies (usually normalized such that the supply of each good is 1). * A set of buyers. * For each buyer , there is a pre-specified monetary budget . Each product has a price ; the prices are determined by methods described below. The price of a bundle of products is the sum of the prices of the products in the bundle. A bundle is represented by a vector , where is the quantity of product . So the price of a bundle is . A bundle is affordable for a buyer if the price of that bundle is at most the buyer's budget. I.e, a bundle is affordable for buyer if . Each buyer has a preference relation over bundles, which can be represented by a utility function. The utility function of buyer is denoted by . The demand set of a buyer is the set of affordable bundles that maximize the buyer's utility among all affordable bundles, i.e.: . A competitive equilibrium (CE) is a price-vector in which it is possible to allocate, to each agent, a bundle from his demand-set, such that the total allocation exactly equals the supply of products. The corresponding prices are called market-clearing prices. The main challenge in analyzing Fisher markets is finding a CE. (Wikipedia).

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