Is it possible to find equilibrium prices in a linear exchange model for six countries whose directed graph looks like the one below, and why? The arrows have the usual meaning, for example, the arrow from A to B means that country A is selling its product to country B A B C F E
Is it possible to find equilibrium prices in a linear exchange model for six countries whose directed graph looks like the one below, and why? The arrows have the usual meaning, for example, the arrow from A to B means that country A is selling its product to country B A B C F E
Chapter1: Making Economics Decisions
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Transcribed Image Text:**Title: Equilibrium Prices in a Linear Exchange Model**
**Question:**
Is it possible to find equilibrium prices in a linear exchange model for six countries whose directed graph looks like the one below, and why? The arrows have the usual meaning. For example, the arrow from A to B means that country A is selling its product to country B.
**Diagram Explanation:**
The diagram is a directed graph representing trade relationships between six countries labeled A, B, C, D, E, and F. The arrows indicate the direction of trade, meaning which country is selling to which. Here’s a breakdown of the observed trade relationships:
- Country A is selling to Countries B, C, D, and F.
- Country B has no outgoing trades depicted.
- Country C is selling to Countries D, E, and A.
- Country D is selling to Country E.
- Country E is selling to Country F.
- Country F is selling to Countries A, B, and C.
**Answer Options:**
- a) No, because equilibrium prices never exist.
- b) Yes, as long as the countries' governments are conservative.
- c) Yes, as long as inflation is low.
- d) No, because it is not possible to go from C to F following the arrows.
In this setup, the question explores the possibility of finding equilibrium prices given the trade dynamics represented in the graph. The correct answer may depend on additional economic theories and assumptions about trade and market behavior.
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