2. Chapter 29 Exchange

3. Partial equilibrium and general equilibrium

4. Edgeworth box p497 A pure exchange model of two goods, two consumers with fixed endowments w.

5. Region of mutual advantages. Pareto set and the contract curve. Bargaining for relative prices. Gross demand x (p), Net or excess demand z (p) = x (p) - w (p).

6. Person B Person A xA1xA1 wA1wA1 Endowment wA2wA2 xA2xA2 GOOD 2 GOOD 1 xB1xB1 wB1wB1 xB2xB2 wB2wB2 M

7. Endowment Person B’s indifference curve A Pareto efficient allocation Person A’s indifference curve Contract curve Person A GOOD 1 GOOD 2 Person B

8. From disequilibrium to the competitive equilibrium. Which good is too cheap? Offer curve approach. The existence problem of equilibrium.

9. A’s ind, curves B’s ind. curves A’s offer curve B’s offer curve Good 1 is Too cheap Equilibrium price W E

10. Chapter 30 Production

11. The Robinson Crusoe economy Production function Indifference curves LaborL*L* C* Coconuts

12. Production possibilities set F* C* COCNUTS FISH PRODUCTION POSSIBILITIES SET SLOPE=MARGINAL RATE OF TRANSFORMATION (Two outputs case)

13. Trade leads to Separation of prod. and coms. (P/C), Production specialization(A P), and Wealth improvement( A C). A P C

14. Heckscher-Ohlin theory on international trade, under many idealization assumptions.

15. * Costs of exchange. * Price difference between selling and buying. Fig. * GATT and WTO.

16. Chapter 30 Welfare

17. The social preference. Two kinds of voting: majority, and rank-order.

18. The social welfare function. Benthamite: W (u 1, …,u n ) = a 1 u 1 + … + a n u n. Rawlsian: W (u 1, …,u n ) = min {u 1, …, u n }.

19. Three requirements on a social decision mechanism: 1, It should be complete, reflexive, and transitive; 2, If everyone prefers X to Y, then the society should prefer X to Y; 3, The preferences between X and Y should depend only on how people rank X versus Y, and not on how they rank other alternatives.

20. Arrow's Impossibility Theorem If a social decision mechanism satisfies properties 1, 2, and 3, then it must be a dictatorship: all social rankings are the rankings of one individual.