Lecture+25+April+27

Lecture+25+April+27 - • The case for market allocation...

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Unformatted text preview: • The case for market allocation revisited: • A second look at the Fundamental theorem of welfare economics • Remedies for market failures Today ʼ s agenda Coming attraction… Final Exam College Avenue Main Gym Thursday, May 5 8 to 11 am Not in Hickman 138! Basak Uysal will hold office hours today after lecture in Hickman 401 Student Instructional Rating Surveys • On Sakai • Log in. • Click "All Surveys" in the left-side menu on the "My Workspace" page. Q & A session • Wednesday, May 4 • 2:00 to 5:00 p.m. • 105 Voorhees Hall CAC Office hours and review sessions • Today , office hours after class, upstairs in Hickman 401, Basak Uysal • Thursday : regular problem session , 9:50 to 11:10 in Scott 214, and office hours , 2:00 to 3:20, NJ Hall 404, Cheng Gao • Friday : office hours ,10:00 to 12:00, NJ Hall 429, Basak Uysal • Monday : office hours , 9:00 to 10:30 in NJ Hall 303a, Douglas Blair • Tuesday : office hours , 4:30 to 6:30, NJ Hall 404, Cheng Gao • Wednesday : Q & A session , 2:00 to 5:00, Voorhees 105, Douglas Blair • Thursday, May 5: Final exam, 8:00 to 11:00 a.m., College Avenue Main Gym Pareto efficiency • Pareto efficiency : no feasible reallocation of inputs or outputs would make someone better off without making someone worse off. • If the allocation of resources is Pareto efficient, then it is impossible to make everyone better off. Necessary conditions for Pareto efficiency • Need to distribute output so no consumer can be made better off without making another worse off • Need to be on the PPC • Need to be at the right point on the PPC Butter Guns First efficiency requirement: Distribute produced goods optimally • “Distributive efficiency” • Distribute output so no consumer can be made better off without making another worse off • Need: MRS AB me = MRS AB you First efficiency requirement: Distribute produced goods optimally • “Distributive efficiency” • Distribute output so no consumer can be made better off without making another worse off • Need: MRS AB me = MRS AB you B A B A Me You First efficiency requirement: Distribute produced goods optimally • “Distributive efficiency” • Distribute output so no consumer can be made better off without making another worse off • Need: MRS AB me = MRS AB you Pareto improvement: You give me 2 bananas. I give you 1 apple. B A B A Me You 1 1 2 2 Pareto improvement: You give me 2 bananas. I give you 1 apple. First efficiency requirement: Distribute produced goods optimally • “Distributive efficiency” • Distribute output so no consumer can be made better off without making another worse off • Need: MRS AB me = MRS AB you MRS AB me = p A / p B = MRS AB you Utility maximization First efficiency requirement: Distribute produced goods optimally • Earlier (and equivalent!) view • Need: MB X me = MB X you • For all goods and all pairs of consumers • MB X me = P x = MB X you Rational behavior by consumers Second efficiency requirement:...
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This document was uploaded on 10/27/2011 for the course ECONOMICS 103 at Rutgers.

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Lecture+25+April+27 - • The case for market allocation...

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