General Equilibrium - General Equilibrium and Core Theorems...

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General Equilibrium and Core Theorems
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Key issues 1. general equilibrium 2. Pareto principal 3. efficiency and equity
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Partial equilibrium analysis an examination of equilibrium and changes in equilibrium in one market in isolation problem: by holding prices and quantities of other goods fixed, we ignore possibility that events in this market affect other markets' equilibrium prices and quantities doing so is OK for small markets (hoola hoops)
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General-equilibrium analysis study of how equilibrium is determined in all markets simultaneously an event in one market may have a spillover effect on other markets may be linked through demand through supply because output in one market is an input in another
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Partial vs. General Equilibrium study equilibrium in several—but not all— markets simultaneously shock in one market has spillover effect in another market general-equilibrium analysis takes account of spillover, unlike partial-equilibrium analysis partial-equilibrium and general-equilibrium analyses give different answers if spillover effects are large
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Feedback between competitive markets corn and soybean markets are linked consumers substitute between corn and soybeans producers substitute between corn and soybeans
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General Equilibrium - General Equilibrium and Core Theorems...

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