Equilibrium and Media of Exchange in a Convex Trading Post Economy With Transaction Costs

Ross M. Starr

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: General equilibrium is investigated with N commodities traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transactions costs through the spread between bid (wholesale) and ask (retail)prices (quoted as commodity rates of exchange). Budget constraints are enforced at each trading post separately implying demand for a carrier of value between trading posts, commodity money. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask prices. Trade in media of exchange (commodity money) is the difference between gross and net inter-post trades.

Keywords: trading post; bid price; ask price; medium of exchange; money; liquidity (search for similar items in EconPapers)
Date: 2007-07-05
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