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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
• 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
• 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.
- Perfect Competition