Presentation is loading. Please wait.

Presentation is loading. Please wait.

General Equilibrium (cont)

Published byLisa O’Connor’ Modified over 6 years ago

Similar presentations

Presentation on theme: "General Equilibrium (cont)"— Presentation transcript:

1 General Equilibrium (cont)

2 Big ideas: Tuesday: Edgeworth box Pareto efficiency (normative theory)
Today: Competitive equilibrium (positive theory) First welfare theorem

3 Edgeworth Box OB OA

4 Desirable Allocation: Pareto Efficient
Allocation x Pareto efficient, if there does not exist allocation y that is A) at least as good as x for all B) is strictly better for at least one Pareto efficiency = equality of MRS All Pareto efficient allocations=contract curve

5 Pareto efficiency OB OA

6 Competitive (Walrasian) Equilibrium
Walras, and then Arrow + Debreu Individuals respond optimally to prices Prices are such that markets clear We call a competitive equilibrium

7 Competitive (Walrasian) Equilibrium
Competitive Equilibrium A positive model of free market economy Walras, then Arrow and Debreu Extensively used by ``practitioners’’

8 Excess supply, Demand OB OA

9 Excess Demand, Supply, Equilibrium
OB OA

10 Excess Demand, Supply, Equilibrium
OB OA

11 Cobb-Douglass Calculation
Equilibrium = 6 numbers 3 tricks that simplify calculation Market clearing for one market (Walras Law) Use Magic Formulas Solve for relative price (only)

12 Cobb-Douglass example

13 Geometry OB OA

14 Invisible Hand (Adam Smith)
Are markets (Pareto) efficient? First Welfare Theorem: allocation in Competitive equilibrium is Pareto optimal Proof OB OA

15 Perfect substitutes: Efficiency
OB OA

16 Perfect substitutes: Equilibrium
Competitive equilibrium:

17 Other Preferences Quasilinear Perfect complements

Download ppt "General Equilibrium (cont)"

Similar presentations

6.853: Topics in Algorithmic Game Theory Fall 2011 Constantinos Daskalakis Lecture 16.

6.853: Topics in Algorithmic Game Theory Fall 2011 Constantinos Daskalakis Lecture 16.
Theories of Imperfect Competition Major Contributors: –Piero Sraffa (1898-1983) –Joan Robinson (1903-1983) –Edward Chamberlin (1899-1967) Sraffa’s 1926.

Theories of Imperfect Competition Major Contributors: –Piero Sraffa ( ) –Joan Robinson ( ) –Edward Chamberlin ( ) Sraffa’s 1926.
Chapter 16. GENERAL EQUILIBRIUM AND MARKET EFFICIENCY McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter.

Chapter 16. GENERAL EQUILIBRIUM AND MARKET EFFICIENCY McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter.
A P.O. Is a C.E. © 1998, 2007 by Peter Berck. What Is It Good? Sum of surplus and profits allows for policies that make income less evenly distributed.

A P.O. Is a C.E. © 1998, 2007 by Peter Berck. What Is It Good? Sum of surplus and profits allows for policies that make income less evenly distributed.
Chapter Twenty-Nine Exchange. u Two consumers, A and B. u Their endowments of goods 1 and 2 are u E.g. u The total quantities available and units of good.

Chapter Twenty-Nine Exchange. u Two consumers, A and B. u Their endowments of goods 1 and 2 are u E.g. u The total quantities available and units of good.
General Equilibrium Theory

General Equilibrium Theory
General Equilibrium and Efficiency. General Equilibrium Analysis is the study of the simultaneous determination of prices and quantities in all relevant.

General Equilibrium and Efficiency. General Equilibrium Analysis is the study of the simultaneous determination of prices and quantities in all relevant.
MICROECONOMICS: Theory & Applications Chapter 19 General Equilibrium Analysis and Economic Efficiency By Edgar K. Browning & Mark A. Zupan John Wiley.

MICROECONOMICS: Theory & Applications Chapter 19 General Equilibrium Analysis and Economic Efficiency By Edgar K. Browning & Mark A. Zupan John Wiley.
Chapter Twenty-Nine Exchange. u Two consumers, A and B. u Their endowments of goods 1 and 2 are u E.g. u The total quantities available and units of good.

Chapter Twenty-Nine Exchange. u Two consumers, A and B. u Their endowments of goods 1 and 2 are u E.g. u The total quantities available and units of good.
Robinson Crusoe model 1 consumer & 1 producer & 2 goods & 1 factor: –two price-taking economic agents –two goods: the labor (or leisure x 1 ) of the consumer.

Robinson Crusoe model 1 consumer & 1 producer & 2 goods & 1 factor: –two price-taking economic agents –two goods: the labor (or leisure x 1 ) of the consumer.
General Equilibrium and Market Efficiency Production Economy.

General Equilibrium and Market Efficiency Production Economy.
CHAPTER 30 EXCHANGE.

CHAPTER 30 EXCHANGE.
1 Exchange Molly W. Dahl Georgetown University Econ 101 – Spring 2009.

1 Exchange Molly W. Dahl Georgetown University Econ 101 – Spring 2009.
General Equilibrium and Market Efficiency

General Equilibrium and Market Efficiency
General Equilibrium Theory A General Economy m consumers n producers (n goods) Resources m X n demand equations n supply equations Prices A Pure Exchange.

General Equilibrium Theory A General Economy m consumers n producers (n goods) Resources m X n demand equations n supply equations Prices A Pure Exchange.
 The Problem of Exchange.  Given an economy where individuals are allocated a certain amount of goods, we will o Investigate barter exchange o define.

 The Problem of Exchange.  Given an economy where individuals are allocated a certain amount of goods, we will o Investigate barter exchange o define.
1 Intermediate Microeconomic Theory Exchange. What can a market do? We’ve seen that markets are interesting in that if one exists, and someone chooses.

1 Intermediate Microeconomic Theory Exchange. What can a market do? We’ve seen that markets are interesting in that if one exists, and someone chooses.
1 Exchange. 2 Two consumers, A and B. Their endowments of goods 1 and 2 are E.g. The total quantities available and units of good 1 units of good 2. and.

1 Exchange. 2 Two consumers, A and B. Their endowments of goods 1 and 2 are E.g. The total quantities available and units of good 1 units of good 2. and.
Market Efficiency SPHA511, John Ries. Market Economies and Perfect Competition Prices are determined by supply and demand Demand represents aggregate.

Market Efficiency SPHA511, John Ries. Market Economies and Perfect Competition Prices are determined by supply and demand Demand represents aggregate.
Chapter 18W McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 18W McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Similar presentations

Ads by Google