Chapter 10 Outline - Chapter 10: Outline Production is...

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Chapter 10: Outline Production is efficient only if it is impossible to produce more output at current cost given current knowledge. Consumption is efficient only if goods cannot be reallocated across people so that at least someone is better off and no one is harmed Pareto efficient: describing an allocation of goods or services such that any reallocation harms at least one person Main Topics: 1) General equilibrium: The welfare analysis in Chapter 9 changes when a government policy changes or other shock affects several markets at once 2) Trading between two people: Where two people have goods but cannot produce more goods, both parties benefit from mutually agreed trades 3) Competitive exchange: The competitive equilibrium has two desirable properties: Any competitive equilibrium is Pareto-efficient allocation can be obtained by using competition, given an appropriate income distribution 4) Producing and trading: The benefits from trade continue to hold when production is introduced 5) Efficiency and equity: Because there are many Pareto-efficient allocations, a society uses its views about equity to choose them 10.1 General Equilibrium Partial-equilibrium analysis: an examination of equilibrium and changes in equilibrium in one market in isolation General-equilibrium analysis: the study of how equilibrium is determined in all markets simultaneously Markets are closely related if an increase in the price in one market causes the demand or supply curve in another market to shift measurably 10.2 Trading Between Two People Endowment:
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This note was uploaded on 05/03/2009 for the course PAM 200 taught by Professor Unur during the Spring '08 term at Cornell University (Engineering School).

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Chapter 10 Outline - Chapter 10: Outline Production is...

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