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Unformatted text preview: Chapter 16 - General Equilibrium, Efficiency and Equity Ch 16: General Equilibrium, Efficiency and Equity Main Concepts and Learning Objectives This chapter focuses on general equilibrium. The chapter begins with a clear exposition of the difference between partial equilibrium and general equilibrium, using tax incidence as a specific example. The chapter then addresses three major topics: gains from trade, efficiency concepts, and tradeoffs between efficiency and equity. The chapter provides a detailed explanation of the construction of an Edgeworth Box, and uses the Edgeworth Box to discuss the concept of gains from trade. The chapter then defines output, input and exchange efficiency and develop a graphical demonstration of the welfare theorems. Finally, the chapter discusses tradeoffs between efficiency and equity, and presents an interesting discussion of trends in the concentration of wealth in the U.S. Students who master the material presented in this chapter will be able to: Compute the general equilibrium impact of a specific tax, and describe the difference between partial and general equilibrium Use an Edgeworth Box to explain gains from trade Explain output, input and exchange efficiency Discuss potential trade-offs between efficiency and equity, implications of the fact that gains from trade are not distributed evenly across individuals within a country, and discuss trends in concentration of wealth in the U.S. 16-1 Chapter 16 - General Equilibrium, Efficiency and Equity Multiple Choice Quiz (10 questions) covering main points: 1. General equilibrium analysis focuses on the effects of links between markets. Which of the following provide examples of general equilibrium issues? (You may check more than one answer.) a. The impact of gasoline price increases on the demand for fuel efficient cars is one example of demand side links. b. The impact of increased ethanol production on the price of food products (due to the impact on the price of corn) is an example of supply side links. c. As the price of gasoline increased, some household reduced their consumption of gasoline. d. All of the above. 2. Which of the following statements is correct. a. Partial equilibrium analysis always provides an accurate computation of the impact of a specific tax. b. Partial equilibrium analysis does not provide an accurate computation of the impact of a specific tax on one good if that good is a substitute or complement for other goods. c. General equilibrium analysis provides an accurate computation of the impact of a specific tax on one good. d. Both b and c. 3. Do investment tax breaks help or harm working class people? Economic analysis of this question requires estimates of the magnitudes of: a. corporate greed....
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.
- Spring '11