(General Equilibrium and Economic Efficiency (Chapter 16
اسلاید 1: Chapter 16General Equilibrium and Economic Efficiency
اسلاید 2: Chapter 16Slide 2Topics to be DiscussedGeneral Equilibrium AnalysisEfficiency in ExchangeEquity and EfficiencyEfficiency in Production
اسلاید 3: Chapter 16Slide 3Topics to be DiscussedThe Gains from Free TradeOn Overview--The Efficiency of Competitive MarketsWhy Markets Fail
اسلاید 4: Chapter 16Slide 4General Equilibrium AnalysisPartial equilibrium analysis presumes that activity in one market is independent of other markets.
اسلاید 5: Chapter 16Slide 5General Equilibrium AnalysisGeneral equilibrium analysis determines the prices and quantity in all markets simultaneously and takes the feedback effect into account.
اسلاید 6: Chapter 16Slide 6General Equilibrium AnalysisA feedback effect is a price or quantity adjustment in one market caused by price and quantity adjustments in related markets.
اسلاید 7: Chapter 16Slide 7General Equilibrium AnalysisTwo Interdependent Markets--Moving to General EquilibriumScenarioThe competitive markets of:Videocassette rentalsMovie theater tickets
اسلاید 8: DVDMTwo Interdependent Markets: Movie Tickets and Videocassette RentalsPriceNumberof VideosPriceNumber ofMovie TicketsSMSV$6.00QMQV$3.00$6.35Q’MS*MAssume the governmentimposes a $1 tax on each movie ticket.Q’VD’V$3.50General Equilibrium Analysis:Increase in movie ticket pricesincreases demand for videos.
اسلاید 9: DVDMTwo Interdependent Markets: Movie Tickets and Videocassette RentalsPriceNumberof VideosPriceNumber ofMovie TicketsSMSV$6.00QMQV$3.00The Feedback effects continue.$3.58Q*VD*V$6.35Q’MD*M$6.82Q*MS*MQ’VD’V$3.50D’MQ”M$6.75The increase in the priceof videos increases the demand for movies.
اسلاید 10: Chapter 16Slide 10ObservationWithout considering the feedback effect with general equilibrium, the impact of the tax would have been underestimatedThis is an important consideration for policy makers. Two Interdependent Markets: Movie Tickets and Videocassette Rentals
اسلاید 11: Chapter 16Slide 11QuestionsWhat would be the feedback effect of a tax increase on one of two complementary goods?What are the policy implications of using a partial equilibrium analysis compared to a general equilibrium in this scenario?Two Interdependent Markets: Movie Tickets and Videocassette Rentals
اسلاید 12: Chapter 16Slide 12The Interdependence of International MarketsBrazil and the United States export soybeans and are, therefore, interdependent.Brazil limited exports in the late 1960’s and early 1970’s.Eventually the export controls were to be removed, and Brazilian exports were expected to increase.
اسلاید 13: Chapter 16Slide 13Partial AnalysisBrazilian domestic soybean price will fall and domestic demand for soybean products would increase.The Interdependence of International Markets
اسلاید 14: Chapter 16Slide 14General AnalysisIn the U.S. the price of soybeans and output would increase; U.S. exports would increase and Brazilian exports would fall (even after regulations ended).The Interdependence of International Markets
اسلاید 15: Chapter 16Slide 15Efficiency in ExchangeExchange increases efficiency until no one can be made better off without making someone else worse off (Pareto efficiency).The Advantages of TradeTrade between two parties is mutually beneficial.
اسلاید 16: Chapter 16Slide 16Efficiency in ExchangeAssumptionsTwo consumers (countries)Two goodsBoth people know each others preferencesExchanging goods involves zero transaction costsJames & Karen have a total of 10 units of food and 6 units of clothing.
اسلاید 17: Chapter 16Slide 17The Advantage of TradeJames7F, 1C-1F, +1C6F, 2CKaren3F, 5C+1F, -1C4F, 4CIndividualInitial AllocationTradeFinal AllocationKaren’s MRS of food for clothing is 3.James’s MRS of food for clothing is 1/2.Karen and James are willing to trade: Karentrades 1C for 1F. When the MRS is not equal,there is gain from trade. The economically efficient allocation occurs when the MRS is equal.
اسلاید 18: Chapter 16Slide 18Efficiency in ExchangeThe Edgeworth Box DiagramWhich trades can occur and which allocation will be efficient can be illustrated using a diagram called an Edgeworth Box.
اسلاید 19: Exchange in an Edgeworth Box10F0K0J6C10F6CJames’sClothingKaren’sClothingKaren’s FoodJames’s Food2C1C5C4C4F3F7F6F+1C-1FThe allocation after trade is B: James has 6F and 2C & Karen has 4F and 4C. ABThe initial allocation before trade is A: James has 7F and 1C & Karen has 3F and 5C.
اسلاید 20: Chapter 16Slide 20Efficiency in ExchangeEfficient AllocationsIf James’s and Karen’s MRS are the same at B the allocation is efficient.This depends on the shape of their indifference curves.
اسلاید 21: Chapter 16Slide 21AA: UJ1 = UK1,but the MRSis not equal.All combinationsin the shadedarea arepreferred to A.Gains fromtradeKaren’sClothingKaren’s FoodUK1UK2UK3James’sClothingJames’s FoodUJ1UJ2UJ3BCDEfficiency in Exchange10F0K0J6C10F6C
اسلاید 22: Chapter 16Slide 22AKaren’sClothingKaren’s FoodUK1UK2UK3James’sClothingJames’s FoodUJ1UJ2UJ3BCDEfficiency in Exchange10F0K0J6C10F6CIs B efficient?Hint: is theMRS equalat B?Is C efficient?and D?
اسلاید 23: Chapter 16Slide 23Efficiency in ExchangeAKaren’sClothingKaren’s FoodUK1UK2UK3James’sClothingJames’s FoodUJ1UJ2UJ3BCD10F0K0J6C10F6CEfficient AllocationsAny move outside the shaded area will make one person worse off (closer to their origin).B is a mutually beneficial trade--higher indifference curve for each person.Trade may be beneficial but not efficient.MRS is equal when indifference curves are tangent and the allocation is efficient.
اسلاید 24: Chapter 16Slide 24Efficiency in ExchangeThe Contract CurveTo find all possible efficient allocations of food and clothing between Karen and James, we would look for all points of tangency between each of their indifference curves.
اسلاید 25: Chapter 16Slide 25The Contract Curve0JJames’sClothingKaren’sClothing0KKaren’s FoodJames’s FoodEFGContractCurveE, F, & G arePareto efficient . If a change improvesefficiency, everyonebenefits.
اسلاید 26: Chapter 16Slide 26Efficiency in ExchangeObservations1)All points of tangency between the indifference curves are efficient.2)The contract curve shows all allocations that are Pareto efficient.Pareto efficient allocation occurs when trade will make someone worse off.
اسلاید 27: Chapter 16Slide 27Efficiency in ExchangeApplication: The policy implication of Pareto efficiency when removing import quotas:1)Remove quotasConsumers gainSome workers lose2)Subsidies to the workers that cost less than the gain to consumers
اسلاید 28: Chapter 16Slide 28Efficiency in ExchangeConsumer Equilibrium in a Competitive MarketCompetitive markets have many actual or potential buyers and sellers, so if people do not like the terms of an exchange, they can look for another seller who offers better terms.
اسلاید 29: Chapter 16Slide 29Efficiency in ExchangeConsumer Equilibrium in a Competitive MarketThere are many Jameses and Karens.They are price takersPrice of food and clothing = 1 (relative prices will determine trade)
اسلاید 30: UK1UK2PPrice LineP’PP’ is the price lineand shows possiblecombinations; slope is -1UJ1UJ2Competitive Equilibrium10F0K0J6C10F6CJames’sClothingKaren’sClothingKaren’s FoodJames’s FoodCABegin at A:Each James buys 2C and sells 2FEach James would move fromUj1 to Uj2, which is preferred (A to C).Begin at A:Each Karen buys 2F and sells 2C. Each Karen would move fromUK1 to UK2, which is preferred (A to C).
اسلاید 31: UK1UK2PPrice LineP’UJ1UJ2Competitive Equilibrium10F0K0J6C10F6CJames’sClothingKaren’sClothingKaren’s FoodJames’s FoodAt the prices chosen:Quantity fooddemanded (Karen)equals quantityfood supplied (James)--competitiveequilibrium.At the prices chosen:Quantity clothing demanded(James) equals quantityclothing supplied (Karen)--competitive equilibrium.CA
اسلاید 32: Chapter 16Slide 32Efficiency in ExchangeScenarioPF and PC = 3James’s MRS of clothing for food is 1/2.Karen’s MRS of clothing for food is 3.James will not trade.Karen will want to trade.The market is in disequilibrium.Surplus of clothingShortage of food
اسلاید 33: Chapter 16Slide 33Efficiency in ExchangeQuestionsHow would the market reach equilibrium?How does the outcome from the exchange with many people differ from the exchange between two people?
اسلاید 34: Chapter 16Slide 34Efficiency in ExchangeThe Economic Efficiency of Competitive MarketsIt can be seen at point C (as shown on the next slide) that the allocation in a competitive equilibrium is economically efficient.
اسلاید 35: Chapter 16Slide 35Competitive Equilibrium10F0K0J6C10F6CJames’sClothingKaren’sClothingKaren’s FoodJames’s FoodPPrice LineUJ1UK1AP’UJ2UK2C
اسلاید 36: Chapter 16Slide 36Efficiency in ExchangeObservations concerning C:1)Since the two indifference curves are tangent, the competitive equilibrium allocation is efficient.2)The MRSCF is equal to the ratio of the prices, or MRSJFC = PC/PF = MRSKFC.
اسلاید 37: Chapter 16Slide 37Efficiency in ExchangeObservations concerning C:3)If the indifference curves were not tangent, trade would occur.4)The competitive equilibrium is achieved without intervention.
اسلاید 38: Chapter 16Slide 38Efficiency in ExchangeObservations concerning C:5)In a competitive marketplace, all mutually beneficial trades will be completed and the resulting equilibrium allocation of resources will be economically efficient (the first theorem of welfare economics)
اسلاید 39: Chapter 16Slide 39Efficiency in ExchangePolicy IssuesWhat is the role of government?
اسلاید 40: Chapter 16Slide 40Equity and EfficiencyIs an efficient allocation also an equitable allocation?Economists and others disagree about how to define and quantify equity.
اسلاید 41: Chapter 16Slide 41Equity and EfficiencyThe Utility Possibilities FrontierIndicates the level of satisfaction that each of two people achieve when they have traded to an efficient outcome on the contract curve.all allocations that are efficient.
اسلاید 42: Chapter 16Slide 42H*Movement from one combination to another (E to F) reduces one persons utility.*All points on the frontier are efficient. Utility Possibilities FrontierJames’s UtilityOJOKEFGKaren’sUtilityL*Any point inside the frontier (H) is inefficient.*Combinations beyond the frontier (L) are not obtainable.Lets compareH to E and F.
اسلاید 43: Chapter 16Slide 43Equity and EfficiencyE & F are efficient.Compared to H, E & F make one person better off without making the other worse off.James’s UtilityKaren’sUtilityOJOKEFHG
اسلاید 44: Chapter 16Slide 44Equity and EfficiencyIs H equitable?Assume the only choices are H & GIs G more equitable? It depends on perspective.At G James total utility > Karen’s total utilityJames’s UtilityKaren’sUtilityOJOKEFHG
اسلاید 45: Chapter 16Slide 45Equity and EfficiencyIs H equitable?Assume the only choices are H & GIs G more equitable? It depends on perspective.H may be more equitable because the distribution is more equal, therefore, an inefficient allocation may be more equitable.James’s UtilityKaren’sUtilityOJOKEFHG
اسلاید 46: Chapter 16Slide 46Equity and EfficiencySocial Welfare FunctionsUsed to describe the particular weights that are applied to each individual’s utility in determining what is socially desirable
اسلاید 47: Chapter 16Slide 47Four Views of EquityEgalitarianAll members of society receive equal amounts of goodsRawlsianMaximize the utility of the least-well-off person
اسلاید 48: Chapter 16Slide 48Four Views of EquityUtilitarianMaximize the total utility of all members of societyMarket-orientedThe market outcome is the most equitable
اسلاید 49: Chapter 16Slide 49Equity and EfficiencyThe Social Welfare Function and EquityEquity is dependent on a normative priority ranging from Egalitarian to Market-orientation.
اسلاید 50: Chapter 16Slide 50Equity and EfficiencyEquity and Perfect CompetitionA competitive equilibrium leads to a Pareto efficient outcome that may or may not be equitable.
اسلاید 51: Chapter 16Slide 51Equity and EfficiencyPoints on the frontier are Pareto efficient.OJ & OK are perfect unequal distributions and Pareto efficient.To achieve equity (more equal distribution) must the allocation be efficient?James’s UtilityKaren’sUtilityOJOK
اسلاید 52: Chapter 16Slide 52Equity and EfficiencySecond Theorem of Welfare EconomicsIf individual preferences are convex, then every efficient allocation is a competitive equilibrium from some initial allocation of goods.
اسلاید 53: Chapter 16Slide 53Equity and EfficiencySecond Theorem of Welfare EconomicsConsider the cost of programs to redistribute income and the trade off between equity and efficiency.
اسلاید 54: Chapter 16Slide 54Efficiency in ProductionAssumeFixed total supplies of two inputs; labor and capitalProduce two products; food and clothingMany people own and sell inputs for incomeIncome is distributed between food and clothing
اسلاید 55: Chapter 16Slide 55Efficiency in ProductionObservationsLinkage between supply and demand (income and expenditures)Changes in the price of one input triggers changes in income and demand which establishes a feedback effect.Use general equilibrium analysis with feedback effects
اسلاید 56: Chapter 16Slide 56Efficiency in ProductionProduction in the Edgeworth BoxThe Edgeworth box can be used to measure inputs to the production process.
اسلاید 57: Chapter 16Slide 57Efficiency in ProductionProduction in the Edgeworth BoxEach axis measures the quantity of an inputHorizontal: Labor, 50 hoursVertical: Capital, 30 hoursOrigins measure outputOF = FoodOC = Clothing
اسلاید 58: 60F50F40L30LLabor in clothing productionEfficiency in Production50L0C0F30KCapitalin clothingproduction20L10L20K10K10L20L30L40L50LCapitalin foodproduction10K20K30K30C25C10C80FLabor in Food ProductionBCDAEach point measures inputs to the production A: 35L and 5K--FoodB: 15L and 25K--ClothingEach isoquant shows inputcombinations for a given outputFood: 50, 60, & 80Clothing: 10, 25, & 30EfficiencyA is inefficientShaded area is preferred to AB and C are efficientThe production contract curve shows all combinations that are efficient
اسلاید 59: Chapter 16Slide 59Efficiency in ProductionProducer Equilibrium in a Competitive Input MarketCompetitive markets create a point of efficient production.
اسلاید 60: Chapter 16Slide 60Efficiency in ProductionCompetitive Market ObservationsThe wage rate (w) and the price of capital (r) will be the same for all industries.Minimize production costMPL/MPK = w/rw/r = MRTSLK MRTS = slope of the isoquantCompetitive equilibrium is on the production contract curve.Competitive equilibrium is efficient.
اسلاید 61: 60F50F40L30LLabor in clothing productionEfficiency in Production50L0C0F30KCapitalin clothingproduction20L10L20K10K10L20L30L40L50LCapitalin foodproduction10K20K30K30C25C10C80FLabor in Food ProductionBCDADiscuss the adjustment process that wouldMove the producers from A to B or C.
اسلاید 62: Chapter 16Slide 62Efficiency in ProductionThe Production Possibilities FrontierShows the various combinations of food and clothing that can be produced with fixed inputs of labor and capital.Derived from the contract curve
اسلاید 63: Chapter 16Slide 63Production Possibilities FrontierFood(Units)Clothing(units)OF & OC are extremes.Why is the productionpossibilities frontierdownward sloping? Why is it concave?B, C, & D areother possiblecombinations.AA is inefficient. ABCtriangle is also inefficientdue to labor marketdistortions.60100OFOCBCD
اسلاید 64: Chapter 16Slide 64Production Possibilities FrontierFood(Units)Clothing(units)60100OFOCABCDB1C1FD2C1FMRT = MCF/MCCThe marginal rate oftransformation (MRT) is the slope of thefrontier at each point.
اسلاید 65: Chapter 16Slide 65Efficiency in ProductionOutput EfficiencyGoods must be produced at minimum cost and must be produced in combinations that match people’s willingness to pay for them.Efficient output and Pareto efficient allocationOccurs where MRS = MRT
اسلاید 66: Chapter 16Slide 66Efficiency in ProductionAssumeMRT = 1 and MRT = 2Consumers will give up 2 clothes for 1 foodCost of 1 food is 1 clothingToo little food is being producedIncrease food production (MRS falls and MRT increases)
اسلاید 67: Chapter 16Slide 67IndifferenceCurveOutput EfficiencyFood(Units)Clothing(units)60100ProductionPossibilitiesFrontierMRS = MRTCHow do you find theMRS = MRT combinationwith many consumerswho have differentindifference curves?
اسلاید 68: Chapter 16Slide 68Efficiency in ProductionEfficiency in Output MarketsConsumer’s Budget AllocationProfit Maximizing Firm
اسلاید 69: Chapter 16Slide 69U2Competition and Output EfficiencyFood(Units)Clothing(units)60100AC1F1BC2F2A shortage of food and surplusof clothing causesthe price of foodto increase andthe price of clothing to decrease.CC*F*Adjustment continues untilPF = PF* and PC = PC*;MRT = MRS; QD = QS for food and clothing.U1
اسلاید 70: Chapter 16Slide 70The Gains from Free TradeComparative AdvantageCountry 1 has a comparative advantage over country 2 in producing a good if the cost of producing that good, relative to the cost of producing other goods, in 1, is lower that the cost of producing the good in 2, relative to the cost of producing other goods in 2.
اسلاید 71: Chapter 16Slide 71The Gains from Free TradeComparative AdvantageComparative advantage is a relative measurement, not absolute.A country with an absolute advantage in the production of all goods will not have a comparative advantage in the production of all goods.Example: Holland and Italy produce cheese and wine
اسلاید 72: Chapter 16Slide 72Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Holland has an absoluteadvantage in both products.
اسلاید 73: Chapter 16Slide 73Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Holland’s comparative advantageover Italy is in cheese: the cost of cheeseis 1/2 the cost of wine and Italy’s cost of cheese is twice the cost of wine.
اسلاید 74: Chapter 16Slide 74Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Italy’s comparative advantage is wine,which is half the cost of cheese.
اسلاید 75: Chapter 16Slide 75Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Without Trade: Assume PW = PC in Holland & Italy.Holland has 24 hrs. of labor--max. wine = 12 gals &max. cheese = 24 lbs. or a combination
اسلاید 76: Chapter 16Slide 76Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)With Trade: Italy produces 8 gal. and trades 6; consumes 6 lbs. and 2 gals.Without Trade: 3 lbs. and 2 gals.
اسلاید 77: Chapter 16Slide 77Pre-trade pricesU1The Gains from TradeWine(gallons)Cheese(pounds)AWithout trade: production &consumption at A in Holland.MRT = Pw/PC = 2WorldpricesBCBWBWith trade (assume relativeprice Pw = PC): Produceat B, MRT = 1CDWDDU2Consumption at D after trade.Holland imports the wind and exports cheese.Who gains and wholoses from trade?
اسلاید 78: Chapter 16Slide 78The Effects of Automobile Import QuotasA Changing Automobile MarketImports (as a percentage of domestic sales)1965 -- 6.1%1980 -- 28.8%In 1981 a voluntary export restraint (VER) was negotiated.In 1980 Japan exported 2.5 million cars to the U.S.In 1981 with the VER exports fell to 1.68 million cars.
اسلاید 79: Chapter 16Slide 79Measuring the Impact of the VER1)Japanese car prices rose nearly $1,000/car in 1981-1982, and revenue increase by $2 billion.2)Demand for U.S. cars increasedU.S. profits by $10 billionThe Effects of Automobile Import Quotas
اسلاید 80: Chapter 16Slide 80Measuring the Impact of the VER3)U.S. car prices were $350 to $400/auto higher than they would have been without VER, or consumers were worse off by $3 billion .4)U.S. sales rose by 500,000 units creating about 26,000 jobs.The Effects of Automobile Import Quotas
اسلاید 81: Chapter 16Slide 81Measuring the Impact of the VER5)Cost/Job = $4.3 billion (consumer cost)/26,000 jobs) = $160,000The Effects of Automobile Import Quotas
اسلاید 82: Quantifying the Costs of ProtectionProducer GainsConsumer LossesEfficiency LossesIndustry($ millions)($millions)($millions)Book manufacturing30550029Orange juice390525130Textiles an apparel22,00027,0004,850Carbon steel3,8006,800330Color televisions1904207Sugar550930130Dairy products5,0005,5001,370Meat1,6001,800145
اسلاید 83: Chapter 16Slide 83An Overview---The Efficiency of Competitive MarketsConditions Required for Economic EfficiencyEfficiency in Exchange
اسلاید 84: Chapter 16Slide 84Conditions Required for Economic EfficiencyEfficiency in Exchange (for a competitive market)An Overview---The Efficiency of Competitive Markets
اسلاید 85: Chapter 16Slide 85Conditions Required for Economic EfficiencyEfficiency in the Use of Inputs in ProductionAn Overview---The Efficiency of Competitive Markets
اسلاید 86: Chapter 16Slide 86Conditions Required for Economic EfficiencyEfficiency in the Use of Inputs in Production (for a competitive market)An Overview---The Efficiency of Competitive Markets
اسلاید 87: Chapter 16Slide 87Conditions Required for Economic EfficiencyEfficiency in the Output MarketAn Overview---The Efficiency of Competitive Markets
اسلاید 88: Chapter 16Slide 88Conditions Required for Economic EfficiencyEfficiency in the Output Market (in a competitive market)An Overview---The Efficiency of Competitive Markets
اسلاید 89: Chapter 16Slide 89Conditions Required for Economic EfficiencyHowever, consumers maximize their satisfaction in competitive markets only ifAn Overview---The Efficiency of Competitive Markets
اسلاید 90: Chapter 16Slide 90Why Markets FailMarket PowerIn a monopoly in a product market, MR < PMC = MRLower output than a competitive marketResources allocated to another marketInefficient allocation
اسلاید 91: Chapter 16Slide 91Why Markets FailMarket PowerMonopsony in the labor marketRestricted supply of labor in foodwf would rise, wL would fallClothing input:Food input:
اسلاید 92: Chapter 16Slide 92Why Markets FailIncomplete InformationLack of information creates a barrier to resource mobility.ExternalitiesWhen consumption or production creates cost and benefits to third parties which changes the cost and benefits of decisions and create inefficiencies.
اسلاید 93: Chapter 16Slide 93Why Markets FailPublic GoodMarkets undersupply public goods because of difficulty associated with measuring consumption.
اسلاید 94: Chapter 16Slide 94SummaryPartial equilibrium analyses of markets assume that related markets are unaffected, while general equilibrium analyses examine all markets simultaneously.An allocation is efficient when no consumer can be made better off by trade without making someone else worse off.
اسلاید 95: Chapter 16Slide 95SummaryA competitive equilibrium describes a set of prices and quantities, so that when each consumer chooses his or her most preferred allocation, the quantity demanded is equal to the quantity supplied in every market.The utility possibilities frontier measures all efficient allocations in terms of the levels of utility that each person achieves.
اسلاید 96: Chapter 16Slide 96SummaryBecause a competitive equilibrium need not be equitable, the government may wish to help redistribute wealth from rich to poor.An allocation of production inputs is technically efficient if the output of one good cannot be increased without increasing the output of some other good.
اسلاید 97: Chapter 16Slide 97SummaryThe production possibilities frontier measures all efficient allocations in terms of the levels of output that can be produced with a given combination of inputs.Efficiency in the allocation of goods to consumers is achieved only when the MRS of one good for another in consumption is equal to the MRT of one good for another in production.
اسلاید 98: Chapter 16Slide 98SummaryFree international trade expands a country’s production possibilities frontier.Competitive markets may be inefficient for one or more of four reasons.
اسلاید 99: End of Chapter 16General Equilibrium and Economic Efficiency
نقد و بررسی ها
هیچ نظری برای این پاورپوینت نوشته نشده است.