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Question confusing me about Asset Market and Arrow-Debreu Equilibrium

  1. Jan 4, 2005 #1
    In the asset market equilibrium and Arrow-Debreu equilibrium, for each every agent, the budge constraint has the form of inequality (not strictly), however, Asset market clear is the aggregate asset is zero and market clear is aggregate endowment euqals the aggregate consumption. I wonder if we do Not assume the increasing utility function (local nonsatiation), is it possible that the budget constraint is Not binding while the condition of asset market clear and market clear satisfied respectively, say, some individual's budget constraint is Not binding while the aggregate consumption is equivalent to aggregate endowment?
     
  2. jcsd
  3. Jan 23, 2005 #2
    I'd say not, because:

    If for one individual the budget constraint isn't binding, then the total value of his demand is strictly less than the total value of his endowments. For everyone else, the total value of their demands is at most equal to the total value of their endowments (otherwise they would violate their budget constraints). So the total value of demands aggregated across all individuals is then strictly less than the total value of all endowments. This means the sum of all demands can't be equal to the sum of all endowments, because then their values would be the same.

    (By "value", I mean sum of (price times amount of good).)
     
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