ABSTRACT

These models of pure exchange do not dichotomize traders into buyers and sellers. A trader can be both a buyer of one commodity and a seller of another. Also, trades need not occur at constant-unit prices. The terms of trade are too complicated to be so described, that is, by prices independent of the quantity transacted. Nor is this all. It need not be true that somebody who ends up with a positive holding of a commodity has a marginal valuation above its price. Prices are Lagrangian multipliers, shadow prices, associated with the feasibility constraints. They are ancillary to finding the best trades. This is because one cannot compute these shadow prices until after having found the best allocation of the available supplies.