E303lect13F09 - Reading Baye 54-62(Today Problem Set#4 due...

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September 21, 2009 Reading Baye, 54-62 (Today) Problem Set #4 due Friday Lecture 13 REVIEW___________________________________________________: II. Chapter Market Forces: Demand and Supply C. Supply 4. Changes in Supply vs. Changes in Qty. Supplied 5. Producer Surplus D. Equilibrium. Putting Supply and Demand Together 1. Definition. 2. Properties of equilibrium a. Stability (the market tends to equilibrium) PREVIEW________________________________________________ b. Welfare Maximization 3. Binding the market. a. Price floors LECTURE______________________________________________________ b. The optimality of equilibrium. Our assumptions about competitive markets rest on three assumptions. 1) No market power . No single buyer or seller can unilaterally manipulate the price. 2) Full information. Buyers have full information regarding product quality, availability and price. Sellers have full information regarding the technology of production. 3) Pure privacy . The marginal social cost of production equals the marginal private cost, and the marginal social benefit of consumption equals the marginal private benefit. (That is, there are no ‘externalities’
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