Discussion
A solution of Walrasian general equilibrium will exist if and only if,
Answer: B
The keyed answer is that a Walrasian solution exists only if Pareto's condition of optimality is satisfied. In the textbook treatment of general equilibrium, the equilibrium of perfectly competitive markets is the allocation at which the Paretian marginal conditions hold together: equal marginal rates of substitution across consumers, equal marginal rates of technical substitution across firms, and equality of the rate of product transformation with the common marginal rate of substitution. Option A names the mathematical device used in modern existence proofs, but it is a proof technique and not an economic condition on the allocation. Option C, Hicks's stability conditions, concern whether a price adjustment process converges, not whether a solution exists. Option D, Pareto's law of income distribution, is a statistical regularity about income and has no role in equilibrium.
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