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Partial Equilibrium III:Taxes, Second Welfare Theorem, Monopoly
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Allocations: Good? Feasible? Competitive?AllocationAn allocationx = [qs, qd,,m].Allocations: what we care about.Feasible AllocationAn allocationx= [qs, qd,,m]is feasibleif:(i)qs≥qdAll limes are produced(ii)Y – c(qs)≥+ mMoney (endowment) is used to produce thelimes,c(qs),topayprofit,,andtoconsumem.PreferencesConsumer and firm have preferences overallocations.Firm: The more money (profit) the better.Consumer: Whatever maximizesU=m + v(q)