This preview shows pages 1–8. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core General Equilibrium (without Production) or Exchange (Chapter 31) General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core General Equilibrium Events in one market have effects on other markets (spillovers) Demand for x depends upon prices of complements, substitutes; income Supply of x depends upon factor prices Previously, weve taken these as given doing partial equilibrium analysis But its important to understand interdependence of markets general equilibrium analysis Partial equilibrium analysis says that competitive markets yield efficient outcomesis this still true in general equilibrium? General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core General Equilibrium Our approach: Simple environmentthe entire economy 2 kinds of goods 2 people Focus on exchange Abstract away from production of new goods Give people endowments Specify preferences Allow them to trade Make predictions about behavior of utilitymaximizers Evaluate welfare General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core Endowment Economy Consumers A and B ; goods 1 and 2 Endowments: A = ( A 1 , A 2 ) and B = ( B 1 , B 2 ) Example: A = (6 , 4) and B = (2 , 2) This means total endowment of good 1 is A 1 + B 1 = 6 + 2 = 8 and of good 2 is A 2 + B 2 = 4 + 2 = 6 General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core Allocations Endowment represents where people start, but through trade, their allocations may change General allocation or consumption: x A = ( x A 1 , x A 2 ) and x B = ( x B 1 , x B 2 ) ( x A , x B ) is feasible if it uses at most the aggregate endowment: x A 1 + x B 1 A 1 + B 1 and x A 2 + x B 2 A 2 + B 2 Helpful graphical tool: Edgeworth Box Allows us to simply depict all feasible allocations General vs. Partial Equilibrium The Edgeworth Box The Contract Curve The Core Edgeworth Box Z A ( , ) 6 4 Z B ( , ) 2 2 O A O B 6 8 4 6 2 2 The endowment allocation The Endowment Allocation General vs. Partial EquilibriumGeneral vs....
View
Full
Document
 Fall '08
 KILENTHONG

Click to edit the document details