Chapter 16 General Equilibrium and Economic Efficiency一般

经济学

Chapter 16 General Equilibrium and Economic EfficiencyChapter Outline General Equilibrium Analysis Efficiency in Exchange

Equity and Efficiency Efficiency in Production The Gains (得益) from Free Trade An Overview—The Efficiency of Competitive Markets Why Markets fail

经济学

16.1 General Equilibrium Analysis Partial equilibrium analysis--Determination of equilibrium prices and quantities in a market independent of effects from other markets. General equilibrium analysis--Simultaneous determination of the prices and quantities in all relevant markets, taking feedback effects into account.

经济学

Two Interdependent Markets: (a) Movie Tickets and (b) Videocassette Rentals

经济学

When markets are interdependent, the prices of all products must be simultaneously determined. Here a tax on movie tickets

shifts the supply of movies upward from SM to S*M, as shown in (a).The higher price of movie tickets ($6.35 rather than $6.00) initially shifts the demand for videocassettes upward (from DV to D’V), causing the price of videos to rise (from $3.00 to $3.50), as shown in (b).

经济学

The higher video price feeds back into the movie ticket market, causing demand to shift from DM to D’M and the price of movies to increase from $6.35 to $6.75. This continues until a general equilibrium is reached, as shown at the intersection of D*M and S*M in (a), with a movie ticket of$6.82, and the intersection of D*V and SV in (b), with a video price

of $3.58.

经济学

16.2 Efficiency in Exchange Exchange economy(交换经济)--Market in which two or more consumers trade two goods among themselves.

Efficient allocation--Allocation of goods in which no one canbe made better off unless someone else is made worse off. Edgeworth box (埃奇沃斯盒形图)--Diagram (示图) showing all possible allocations of either two goods between two people or of two inputs between two production processes.

经济学

Exchange in an Edgeworth Box

经济学

Each point in the Edgeworth box simultaneously represents

James's and Karen's market baskets of food and clothing.At A, for example, James has 7 units of food and 1 unit of clothing, and Karen 3 units of food and 5 units of clothing.

经济学

Efficiency in Exchange

经济学

The Edgeworth box illustrates the possibilities for both consumers to increase their satisfaction by trading goods.

If A gives the initial allocation of resources, the shadedarea describes all mutually beneficial trades.

经济学

The Contract Curve

经济学

Contract curve--Curve showing all efficient allocationsof goods between two consumers, or of two inputs betweentwo production functions. The contract curve contains all allocations for which

consumers’ indifference curves are tangent.Every point on the curve is efficient because one person cannot be made better off without making the other person worse off.

经济学

Competitive Equilibrium

经济学

In a competitive market the prices of the two goods determine the terms of exchange among consumers. If A is the initial a

llocation of goods and the price line PP' represents the ratio of prices, the competitive market will lead to an equilibrium at C, the point of tangency of both indifference curves. As a result, the competitive equilibrium is efficient.

经济学

Excess demand -- When the quantity demanded of a good exceeds quantity supplied.

Excess supply -- When the quantity supplied of a goodexceeds quantity demanded. Welfare economics -- Normative evaluation of markets and economic policy.

经济学

The result that a competitive equilibrium is economically

efficient is often described as the first theorem of Welfareeconomics--If everyone trades in the competitive marketplace, all mutually beneficial trades will be completed and the

resulting equilibrium allocation of resources will beeconomically efficient. MRSJFC= PC/PF = MRSKFC Note: MRS of clothing for food