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Unformatted text preview: Prof. Jay Bhattacharya Econ 11--Spring 2001 Welfare Properties of Market Outcomes The Complexity of General Equilibrium • Last time, we covered equilibrium in one market—partial equilibrium. • We found that under perfect competition, the equilibrium price and quantity maximized the sum of producer and consumer surplus. • In an exchange economy, we found that trade at the equilibrium market price led automatically to Pareto optimal outcomes (on the contract curve). • The next two lectures will ask whether these nice welfare properties hold in general equilibrium under perfect competition. • In partial equilibrium analysis, there is a clean and sharp theoretical distinction between producers and consumers. • In general equilibrium, one person may participate simultaneously in many different markets. – Sometimes as a consumer – Sometimes as a producer • There are billions of people in the economy. • Outcomes in one market affect outcomes in countless other markets. • What is needed is some mechanism to concisely convey to everyone information about everyone else’s needs and about the difficulty in fulfilling them. Lecture 17 Lecture 17 Econ 11--Spring 2001 1 Econ 11--Spring 2001 The Role of Market Prices Competitive Equilibrium • The role of prices is to convey signals to every participant about relative scarcity i...
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This note was uploaded on 02/11/2012 for the course ECON 51 at Stanford.

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