Chapter 16 General Equilibrium and Economic Efficiency Chapter Outline General Equilibrium Analysis Efficiency in Exchange Equity and Efficiency Efficiency in Production ·The Gains(得益)from Free Trade An Overview-The Efficiency of Competitive Markets ·Why Markets fail
Chapter 16 General Equilibrium and Economic Efficiency Chapter Outline • General Equilibrium Analysis • Efficiency in Exchange • Equity and Efficiency • Efficiency in Production • The Gains (得益) from Free Trade • An Overview—The Efficiency of Competitive Markets • Why Markets fail
16.1 General Equilibrium Analysis Partial equilibrium analysis-Determination of equilibrium prices and quantities in a market independent of effects from other markets. General equilibrium analysis-Simultaneous determination of the prices and quantities in all relevant markets,taking feedback effects into account
16.1 General Equilibrium Analysis Partial equilibrium analysis-Determination of equilibrium prices and quantities in a market independent of effects from other markets. General equilibrium analysis-Simultaneous determination of the prices and quantities in all relevant markets, taking feedback effects into account
Price Price ) SM ) Sv 6.82 6.75 3.58 3.50 6.35 D 6.00 3.00 D吃 D Dy QMQMOMQM Number of Qy Qr Q7 Number Movie Tickets of Videos (a) (b) Two Interdependent Markets:(a)Movie Tickets and (b)Videocassette Rentals
Two Interdependent Markets: (a) Movie Tickets and (b) Videocassette Rentals
When markets are interdependent,the prices of all products must be simultaneously determined.Here a tax on movie tickets shifts the supply of movies upward from Sy to S*M,as shown in (a). The higher price of movie tickets($6.35 rather than $6.00)initially shifts the demand for videocassettes upward (from Dy to D'v), causing the price of videos to rise (from $3.00 to $3.50),as shown in(b)
When markets are interdependent, the prices of all products must be simultaneously determined. Here a tax on movie tickets shifts the supply of movies upward from SM to S*M, as shown in (a). The higher price of movie tickets ($6.35 rather than $6.00) initially shifts the demand for videocassettes upward (from DV to D’V), causing the price of videos to rise (from $3.00 to $3.50), as shown in (b)
The higher video price feeds back into the movie ticket market, causing demand to shift from Dy to D'm and the price of movies to increase from $6.35 to $6.75. This continues until a general equilibrium is reached,as shown at the intersection of D*M and S*m in(a),with a movie ticket of $6.82,and the intersection of D*y and Sy in (b),with a video price 0fS3.58
The higher video price feeds back into the movie ticket market, causing demand to shift from DM to D’M and the price of movies to increase from $6.35 to $6.75. This continues until a general equilibrium is reached, as shown at the intersection of D*M and S* M in (a), with a movie ticket of $6.82, and the intersection of D*V and SV in (b), with a video price of $3.58
16.2 Efficiency in Exchange ▣Exchange economy(佼换经济)-Market in which two or more consumers trade two goods among themselves. Efficient allocation-Allocation of goods in which no one can be made better off unless someone else is made worse off. 口Edgeworth box(埃奇沃斯盒形-Diagram(际圈)showing all possible allocations of either two goods between two people or of two inputs between two production processes
16.2 Efficiency in Exchange Exchange economy(交换经济)-Market in which two or more consumers trade two goods among themselves. Efficient allocation-Allocation of goods in which no one can be made better off unless someone else is made worse off. Edgeworth box (埃奇沃斯盒形图)-Diagram (示图) showing all possible allocations of either two goods between two people or of two inputs between two production processes
Karen's Food 10F 4F 3F 0水 6C James's Karen's Clothing Clothing 2C B 一● 4CY +1C 1C 5C -1F 6C 0 6F 7F 10F James's Food Exchange in an Edgeworth Box
Exchange in an Edgeworth Box
Each point in the Edgeworth box simultaneously represents James's and Karen's market baskets of food and clothing. At A,for example,James has 7 units of food and 1 unit of clothing,and Karen 3 units of food and 5 units of clothing
Each point in the Edgeworth box simultaneously represents James's and Karen's market baskets of food and clothing. At A, for example, James has 7 units of food and 1 unit of clothing, and Karen 3 units of food and 5 units of clothing
10F Karen's Food OK 6C James's Karen's Clothing Clothing u A u好 luk 6C 01 James's Food 10F Efficiency in Exchange
Efficiency in Exchange
The Edgeworth box illustrates the possibilities for both consumers to increase their satisfaction by trading goods. If A gives the initial allocation of resources,the shaded area describes all mutually beneficial trades
The Edgeworth box illustrates the possibilities for both consumers to increase their satisfaction by trading goods. If A gives the initial allocation of resources, the shaded area describes all mutually beneficial trades