Chapter 8: General
Competitive Equilibrium
❚
Brief chapter, examines more in
detail the concept of
General
Competitive Equilibrium (GCE)
, the
standard of highest efficiency in a
market system.
❚
What GCE implies, and what it
doesn’t imply in terms of an
economy and society.
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General Equilibrium Vs GCE
❚
General Equilibrium
– the situation in which
all markets (goods and factor) are
simultaneously in equilibrium.
❚
General Competitive Equilibrium (GCE)
– the
situation in which all perfectly competitive
markets are in equilibrium simultaneously
with the nice assumptions satisfied.
❚
Inherent in the definition of GCE is that the
“nice assumptions” (
no market power
and
no market failure
) are in effect.
GCE and Pareto Optimality
❚
GCE implies that the economy
operates under the condition of
Pareto
Optimality
, the standard of highest
efficiency in a market system.
❚
Pareto Optimality
– a situation where
there is no way to make one person
better off without making someone
else worse off.
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- Fall '07
- Evensky
- Economics, Free Market, PARETO OPTIMALITY, GCE Pareto Optimality
-
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