Econ11Fall2007NotesForLecture_20Nov19

Econ11Fall2007NotesForLecture_20Nov19 - Lecture XX Notes...

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Lecture XX Notes For November 19, 2007 Problem Set #5 Due, Problem Set #6 Handed Out I. Financial Economics: Diversification of Risk II. Chapter 12, General Equilibrium & Efficiency III. How Can We Achieve Technical Efficiency? IV. How Can We Achieve Allocative Efficiency? V. Sources of Market Failure and Inefficiency I. Financial Economics: Diversification of Risk A. Two types of risk 1.Unique Risk – can be diversified away by pooling with other risks – fire insurance 2.Systematic Risk – can not be diversified away by pooling with other risks – recession, war B. Name the risk game – is it unique? How can the risk be diversified away? 1. Identity theft losses…. 2. Your favorite team may lose the super bowl 3. Change in tax policy regarding vacation homes causes a large fall in the price of your beachfront home 4. I work for a retailer other than Walmart 5. In three years, I plan to sell my house in New York and move to New Mexico C. Policy implications: Should local banks specialize in making loans to homebuyers and businesses in the area
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This note was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11Fall2007NotesForLecture_20Nov19 - Lecture XX Notes...

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