efficiency of a competitive general equilibrium外文电子书籍.doc

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1、EC111IntroductiontoEconomics2012/13EC111IntroductiontoEconomicsLecture10LectureOutline:-Efficiencyofacompetitivegeneralequilibrium-Welfaretheorems-MarketfailuresEssentialreading:Beggetal:Ch.13,14(especially13.1-13.4;14.1-14.3)orSlomanandWridech.111)Competitivegeneralequilibrium

2、Whenweconsiderasinglemarket,forexamplethelabourmarket,wemakeaPartialEquilibriumAnalysis.Thismeansthatwefocusonthatmarketonlywithoutlookingatthepossiblelinkswithothermarkets.However,inaneconomyallmarketsarenormallylinked.Ifsomethinghappensinonemarket,itwillaffectalsoothermarkets

3、.Forexample,recentlythehousemarketinUSwentdown.Thataffectsthecreditmarket.Thefactthatthecreditmarketwentdownaffectsthegoodsmarketandalsothelabourmarket(moreunemployment),etc.etc.Wewillfocusonaneconomywithfewmarkets:therewillbetwogoodsproduced,sowehavetwogoodsmarket,andtwofactor

4、markets,oneforlabourandoneforcapital.Allmarketswillbecompetitive.Wewanttoseewhatthemainpropertiesofthateconomyintermsofefficiencyare.Firstweneedtointroduceawaytomeasureefficiency.TheconceptofefficiencyweuseistheParetoEfficiencycriterion.2)ParetoEfficiencyTheParetocriterionisake

5、yvaluejudgement.Definition:itsaysthatsituationAispreferredtosituationBifinAatleastonepersonisbetteroffandnooneisworseoffthaninB.Thisisaverystringentcriterion.However,itissimpleanditgivesaclearideaaboutwhatefficiencyis.Example:sharingacakebetweentwopeople.17AtpointAindividualAha

6、sthewholecakeandgetsutilityUA;atpointBindividualBgetsthewholecakeandgetsutilityUB.WecannotsaywhetherallocationCisParetosuperiortoeitherAorBbecauseascomparedwithConepersonisworseoff.AllocationEisParetosuperiortoC,becausebothindividualsarebetteroff.ButDisnotsuperiortoC.Atanypoint

7、insidethefrontierthereisarangeofParetosuperiorallocations.Notethatheresomeofthecakeislostorwasted;atleastonepersoncouldbemadebetteroffifthisinefficiencywaseliminated.PointslikeDandE(andAandB)areParetoefficient.Onepersoncannotbemadebetteroffwithoutmakinganotherpersonworseoff.Par

8、etoefficientpointsarepointsofmaximumefficiency.Importa