GE handout - I. General Equilibrium Def: General...

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I. General Equilibrium Def: General Equilibrium (G.E.): The condition that exists when all markets in an economy are in simultaneous equilibrium. Main idea: Markets are connected by labor and capital. Demand in one market is connected to demand in other markets because of budget constraints. Also, capital can be moved from one market to another. Therefore, when there is a disturbance in one market, other markets also adjust. Read through and FIGURE 12.3 Adjustment in an Economy with Two Sectors
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II. Pareto Efficiency Def: Pareto efficiency/optimality (allocative efficiency): A condition in which no change is possible that will make some members of society better off without making other members of society worse off. Potential efficiency: If a change causes some people to be better off, but some people to be worse off, then if the value of the gains exceeds the value of the losses, the gains can be said to be potentially efficient . In other words, people who gain
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This note was uploaded on 12/14/2009 for the course MATH 1 taught by Professor Wilkening during the Spring '08 term at University of California, Berkeley.

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GE handout - I. General Equilibrium Def: General...

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