Question

Consider a pure exchange economy with 2 consumers, 1 and 2, who trade financial assets. There are two states of the world, a and b. State a occurs with probability 2/3 and state b occurs with probability 1/3. What is the probability that state a occurs?

1) 1/3
2) 2/3
3) 1/2
4) 1/4

Answer 1

In a pure exchange economy, the probability of state a occurring is 2/3.

Step-by-step explanation:

In this pure exchange economy, there are two states of the world, a and b, where state a occurs with a probability of 2/3 and state b occurs with a probability of 1/3. The probability of an event happening is calculated by dividing the number of desired outcomes by the total number of possible outcomes. In this case, there are two possible outcomes (states a and b) and state a occurs 2 out of 3 times, so the probability that state a occurs is 2/3.