201Lecture12006

201Lecture12006 - Economics 201BSecond Half Lecture 1...

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Economics 201B–Second Half Lecture 1 Overview of General Equilibrium Theory Edgeworth Box Model General Equilibrium Strategic Holy Grail, 201 Ω %- Partial Equilibrium General Equilibrium Strategic Price-Taking 201A, 201B(1 st half) 201B (2 nd half) IO -% Partial Equilibrium Price-Taking 201A(1 st half) Price-Taking: Assumes competitive market, each agent is neg- ligible, so agents take prices as given. Benchmark against which one compares: Distortion from Monopoly or Oligopoly: Industrial Organiza- tion Distortion arising from Taxes: Public Finance E±ects of Welfare Payments on Labor Supply Externalities Most of Finance is competitive Freshwater Macro Features: 1
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Very successful model of exchange (taken production decisions as given, explains how consumption is allocated) Less succesful model of production (should be strategic) Method of analyzing eFects of policy changes, such as trade liberalization or tax changes ±ocus on Proofs and Precision: ±urther develop skills needed to read journal articles Specify model completely Know what you know Know what you don’t know; public discourse is incomplete or misleading Problem Sets: Most important part of course Work together Write up solutions on your own Fundamental Notion: Walrasian Equilibrium, AKA Com- petive Equilibrium Vector of prices and allocations of goods and production plans such that Consumers maximize utility, taking prices as given ±irms maximize pro²t, taking prices as given All markets clear (Supply = Demand) 2
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Four Fundamental Questions: (G´ erard Debreu made fun- damental contributions to all four 1950-1975. Theory of Value ,
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This note was uploaded on 08/01/2008 for the course ECON 201B taught by Professor Anderson during the Spring '06 term at Berkeley.

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201Lecture12006 - Economics 201BSecond Half Lecture 1...

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