GWLecture4

GWLecture4 - Part IIa Paper 1 General Equilibrium and Welfare Economics Dr Snje Reiche Outline Uniqueness:Will an economy have only one equilibrium

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Part IIa: Paper 1 General Equilibrium and Welfare Economics Dr Sönje Reiche
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Outline Uniqueness: Will an economy have only one equilibrium? Cowell 7.4.3 Stability: Will the economy somehow “tend to” or “revert to” this equilibrium? Price Determination: And will this determine the price system for us? Cowell 7.4.4 Gross substitutes
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( 29 ( 29 ( 29 x s d x R p x p x p E - - Excess Demand Function (2) Only relative prices matter, so = h h x x p p p ~ Prices lie between 0 and 1 (1) Walras’s Law ( 29 0 = h h h p E p Individuals must satisfy their budget constraints
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x p ( 29 p E x Excess supply Excess demand Diagram for two goods and normalised prices 1 Know excess demand for y through Walras’s Law Good x is free Good y is free ( 29 0 = p E x Assume each good is scarce, then equilibrium means Equilibrium
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Uniqueness Given strictly monotone preferences, equilibrium requires that ( 29 0 = p E x x p ( 29 p E x Excess supply Excess demand 1 Well-behaved economy
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This note was uploaded on 03/07/2012 for the course ECON 201 taught by Professor Cowell during the Spring '10 term at LSE.

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GWLecture4 - Part IIa Paper 1 General Equilibrium and Welfare Economics Dr Snje Reiche Outline Uniqueness:Will an economy have only one equilibrium

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