微观经济学（平狄克、鲁宾费尔德）第六版课后答案--微观经济学英文原版--CH16_PINDYCK

1、Chapter 16General Equilibrium and Economic EfficiencyTopics to be DiscussedGeneral Equilibrium AnalysisEfficiency in ExchangeEquity and EfficiencyEfficiency in Production2Topics to be DiscussedThe Gains from Free TradeAn Overview: The Efficiency of Competitive MarketsWhy Markets Fail3General Equilib

2、rium AnalysisUp to this point, we have been focused on partial equilibrium analysis Activity in one market has little or no effect on other marketsMarket interrelationships can be importantComplements and substitutesIncrease in firms input demand can cause market price of the input and product to ri

3、se4General Equilibrium AnalysisTo study how markets interrelate, we can use general equilibrium analysisSimultaneous determination of the prices and quantities in all relevant markets, taking into account feedback effectsThe feedback effect is the price or quantity adjustment in one market caused by

4、 price and quantity adjustments in related markets5Two Interdependent Markets Moving to General EquilibriumScenarioThe competitive markets of:DVD rentalsMovie theater ticketsThese goods are substitutesChanging prices in one market are likely to affect the other market6Two Interdependent Markets Movi

5、ng to General EquilibriumScenarioEquilibrium price of movies is $6.00Equilibrium price of DVD rentals is $3.00Government places a $1.00 tax on each movie ticketNeed to look at effect of tax onMarket for DVDsFeedback effects in movie market7Two Interdependent Markets Movies and DVDsDVDMPriceNumberof

6、VideosPriceNumber ofMovie TicketsSMSV$6.00QMQV$3.00$6.35QMS*M$1 tax on each movie ticket causes supply to fallDVQV$3.50General Equilibrium Analysis:Increase in movie ticket pricesincreases demand for videos.8Two Interdependent Markets Movies and DVDsPriceNumberof VideosPriceNumber ofMovie TicketsDMS

7、M$6.00QM$6.35QMS*MThe increase in the priceof videos increases the demand for movies.DVDVSVQV$3.00QV$3.50General Equilibrium Analysis:The Feedback effects continue.D*M$6.82Q*MQ”M$6.75DM$3.58Q*VD*V9Two Interdependent Markets Movies and DVDsObservationWithout considering the feedback effect with gener

8、al equilibrium, the impact of the tax would have been underestimatedThis is an important consideration for policy makersYou can check for yourself that in the market for complements, the tax would be overestimated10Reaching General EquilibriumMust be able to determine the equilibrium price of both m

9、ovies and DVDs simultaneouslyWe must simultaneously find two prices that equate quantity demanded and quantity supplied in all related marketsThe requires finding the solution to four equations: demand and supply for DVDs and movies11The Interdependence of International MarketsBrazil and the United

10、States compete in the world soybean market, so one market can affect the otherBrazil limited exports of soybeans in the late 1960s and early 1970s, causing price in Brazil to fallEventually the export controls were to be removed, and Brazilian exports were expected to increase12The Interdependence o

11、f International MarketsExpectation was based on partial equilibrium analysisProgram actually increased the price and production of soybeans in US as well as US exportsThis caused Brazil to have difficulties exporting even after control was removedCan show how each market was affected and compare to

12、general equilibrium analysis13Soybean Exports Brazil and US14Efficiency in ExchangeWe showed before that competitive markets are efficient because consumer and producer surpluses are maximizedWe can study this in more detail by examining an exchange economyMarket in which two or more consumers trade

13、 two goods among themselvesSame for two countries15Efficiency in ExchangeAn efficient allocation of goods is one where no one can be made better off without making someone else worse off Pareto efficiencyVoluntary trade between two parties is mutually beneficial and increases economic efficiency16Th

14、e Advantages of TradeAssumptionsTwo consumers (countries)Two goodsBoth people know each others preferencesExchanging goods involves zero transaction costsJames and Karen have a total of 10 units of food and 6 units of clothing17The Advantage of TradeIndividualInitial AllocationTradeFinal AllocationJ

15、ames7F, 1C-1F, +1C6F, 2CKaren3F, 5C+1F, -1C4F, 4CTo determine if they are better off, we need to know the preferences for food and clothing18The Advantage of TradeKaren has a lot of clothing and little foodMRS of food for clothing is 3To get 1 unit of food, she will give up 3 units of clothingJames

16、MRS of food for clothing is only He will give up unit if clothing for 1 unit of food19The Advantage of TradeThere is room for tradeJames values clothing more than KarenKaren values food more than JamesKaren is willing to give up 3 units of clothing to get 1 unit of food, but James is willing to take

17、 only unit of clothing for 1 unit of foodActual terms of trade are determined through bargainingTrade for 1 unit of food will fall between and 3 units of clothing20The Advantage of TradeSuppose Karen offers James 1 unit of clothing for 1 unit of foodJames will have more clothing, which he values mor

18、e than foodKaren will have more food, which she values moreWhenever two consumers MRSs are different, there is room for mutually beneficial tradeAllocation of resources is inefficient21The Advantage of TradeFrom this analysis we obtain an important result:An allocation of goods is efficient only if

19、the goods are distributed so that the marginal rate of substitution between any pair of goods is the same for all consumers22The Edgeworth Box DiagramA diagram showing all possible allocations of either two goods between two people or of two inputs between two production processes is called an Edgew

20、orth Box23The Edgeworth Box DiagramFood is measured across the horizontal axisClothing is measured on the vertical axisLength of box is the total amount of food 10 unitsHeight of box is the total amount of clothing 6 units24The Edgeworth Box DiagramEach point describes the market baskets of both con

21、sumersJames basket is read from origin OJKarens basket is read from origin OK, in the reverse directionJames has 7 units of food and 1 unit of clothing point AKaren has 3 units of food and 5 units of clothing point A from different axis25Exchange in an Edgeworth Box10F0K0J6C10F6CJamesClothingKarensC

22、lothingJames FoodKarens Food1C5C3F7FAThe initial allocation before trade is A: James has 7F and 1C & Karen has 3F and 5C. 26Exchange in an Edgeworth BoxJames FoodKarens Food10F0K0J6C10F6CJamesClothingKarensClothing1C5C3F7FAThe allocation after trade is B: James has 6F and 2C & Karen has 4F and 4C. 4

23、F6F+1C-1F2C4CB27Efficient AllocationsA trade from A to B makes both Karen and James better offIs it efficient?If James and Karens MRS are the same at B, the allocation is efficientThis depends on the shape of their indifference curves28Efficient AllocationsJames indifference curves are drawn as we u

24、sually see themKarens indifference curves are rotated 180o convex to her axisThe indifference curves that go through point A have different slopes and therefore different MRSsThe allocation is not efficient29Efficient AllocationsThe shaded area between these two indifference curves represents all th

25、e possible allocations of food and clothing that would make both James and Karen better off than ADescribes all mutually beneficial trades30Efficient AllocationsWe can see both parties are better off at point B since they both end up on a higher indifference curveNot efficient since MRSs are differe

26、nt indifference curves have different slopesAlthough a trade might make both parties better off, the new allocation is not necessarily efficient31Efficient AllocationsHow do these parties reach an efficient allocation?When there is no more room for tradeWhen their MRSs are equalThey will keep tradin

27、g, reaching higher indifference curves, until they can no longer do so and still make each better offThis is when indifference curves are tangent they have the same slope and same MRS32A: UJ1 = UK1,but the MRSis not equal.All combinationsin the shadedarea arepreferred to A.KarensClothingKarens FoodU

28、K1JamessClothingJamess FoodUJ1Efficiency in Exchange10F0K0J6C10F6CGains fromtradeA33Efficiency in ExchangeKarensClothingKarens FoodJamessClothingJamess Food10F0K0J6C10F6CUK1UJ1APoint B is on higher IC but is not efficient UJ2UK2BAt point C, MRSs are equal and allocation is efficientUK3CD is also a p

29、ossible efficient allocation depending on bargaining UJ3D34Efficiency in ExchangeAny 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 personTrade may be beneficial but not efficientMRS is equal whe

30、n indifference curves are tangent and the allocation is efficientAKarensClothingKarens FoodUK1UK2UK3JamesClothingJames FoodUJ1UJ2UJ3BCD10F0K0J6C10F6C35Efficiency in ExchangeThe Contract CurveTo find all possible efficient allocations of food and clothing between Karen and James, we would look for al

31、l points of tangency between each of their indifference curvesThe contract curve shows all the efficient allocations of goods between two consumers, or of two inputs between two production functions36The Contract Curve0JJamesClothingKarensClothing0KKarens FoodJames FoodEFGContractCurveE, F, & G areP

32、areto efficient. 37Contract CurveAll points of tangency between the indifference curves are efficientMRS of individuals is the sameNo more room for tradeThe contract curve shows all allocations that are Pareto efficientPareto efficient allocation occurs when further trade will make someone worse off

33、38Efficiency in ExchangeApplication: The policy implication of Pareto efficiency when removing import quotas:Remove quotasUS consumers gainSome US workers loseRemoval of quotas and subsidies to the workers39Efficiency in ExchangeUS consumers would be better off and after a time, the US workers are n

34、o worse off and might be better offPackage will increase efficiencyEfficiency, therefore, can be reached when the combined set of changes leaves someone better off and no one worse off40Efficiency in ExchangeConsumer Equilibrium in a Competitive MarketCompetitive markets have many actual or potentia

35、l buyers and sellers, so if people do not like the terms of an exchange, they can look for another seller who offers better terms41Consumer Equilibrium in a Competitive MarketThere are many Jameses and KarensThey are price takersRelative price of food and clothing = 1 Trade depends on relative price

36、s, not actual prices42Consumer Equilibrium in a Competitive MarketWe can show opportunities for trade for many consumersWhen prices of food and clothing are equal, we can show the price line, PP with a slope of 1Shows all possible allocations that exchange can achieveJames buys 2 clothing for 2 food

37、: A to CKaren buys 2 food for 2 clothing: A to CBoth increase satisfaction43Consumer Equilibrium in a Competitive MarketPrice Line10F0K0J6C10F6CJamesClothingKarensClothingKarens FoodJames FoodCABegin at A:Each James buys 2C and sells 2Fmoving from UJ1 to UJ2, which is preferred (A to C).Begin at A:E

38、ach Karen buys 2F and sells 2C moving fromUK1 to UK2, which is preferred (A to C).PPUJ2UJ1UK1UK244Consumer Equilibrium in a Competitive MarketThe amount of clothing that Karen wanted to sell is equal to the amount of clothing that James wanted to buyAn equilibrium is a set of prices at which the qua

39、ntity demanded equals the quantity supplied in every marketAlso called competitive equilibrium45Consumer Equilibrium in a Competitive MarketNot all prices lead to equilibriumIf the MRSs of the players are not equal, then we are not in equilibriumIf the price of food is 1 and price of clothing is 3:J

40、ames is unwilling to trade, MRS = Karen is happy to sell clothing at that price but has no one to sell toMarket is in disequilibrium46Consumer Equilibrium in a Competitive MarketDisequilibrium is only temporary in a competitive marketExcess demand will cause price to riseExcess supply will cause pri

41、ce to fallIn our example, we have excess supply of clothing and excess demand of foodShould expect the price of food to increase relative to price of clothingPrices adjust until equilibrium is reached47Economic Efficiency of Competitive MarketsAs shown before, we can see that the allocation in a com

42、petitive equilibrium is economically efficientThe efficient point must occur where the two indifference curves are tangentIf not, one of the consumers can increase their utility and be better off48Consumer Equilibrium in a Competitive MarketIn a general equilibrium setting where all markets are perf

43、ectly competitive, we can show the same resultBest example of Adam Smiths invisible handEconomy will automatically allocate all resources efficiently without need for regulatory controlSupports argument for less government intervention and more highly competitive markets49Consumer Equilibrium in a C

44、ompetitive MarketFirst Theorem of Welfare EconomicsIf everyone trades in a competitive marketplace, all mutually beneficial trades will be completed and the resulting equilibrium allocation of resources will be economically efficientWelfare economics involves the normative evaluation of markets and

45、economic policy50Consumer Equilibrium in a Competitive MarketCompetitive equilibriumBecause the indifference curves are tangent, all MRSs are equal between consumersBecause each indifference curve is tangent to the price line, each persons MRS is equal to the price ratio of the two goods51Consumer E

46、quilibrium in a Competitive MarketDifficult for efficient allocation with many consumers and producers unless all markets are perfectly competitiveEfficient outcomes can also be achieved by centralized systemCompetitive outcome preferred since consumers and producers can better assess their preferen

47、ces and supplies52Equity and EfficiencyAlthough there are many efficient allocations, some may be more fair than othersThe difficult question is, what is the most equitable allocation?We can show that there is no reason to believe that efficient allocation from competitive markets will give an equit

48、able allocation53The Utility Possibilities FrontierFrom the Edgeworth Box, we showed a two person exchangeThe utility possibilities frontier represents all allocations that are efficient in terms of the utility levels of the two individualsShows the levels of satisfaction that are achieved when the

49、two individuals have reached the contract curve54The Utility Possibilities FrontierJames UtilityKarens UtilityEFGOKLOJHOJ James has zero utilityOK Karen has zero utilityE, F, G points on contract curveH inefficient can do better in shaded areaL - unobtainable55The Utility Possibilities FrontierJames

50、 UtilityKarens UtilityEFGOKOJHAre all efficient points equitable?Efficient points E or F make both persons better off without making one worse off from HIf only possible points are H and G, can argue that one is more equitable to James and one to Karen56The Utility Possibilities FrontierFrom previou

51、s example, can see that an inefficient allocation might be more equitable than an efficient oneBut how do we define an equitable allocation?It depends on what we believe equity to entailRequires interpersonal comparisons of utility57Social Welfare FunctionsWeights are often applied to individuals ut

52、ility to determine what is socially desirableHow these weights are applied comes from the social welfare functionsThe utilitarian function weights everyones utility to maximize utility for the whole society58Social Welfare FunctionsEach social welfare function is associated with a particular view of

53、 equitySome views of equity do not assign weights and cannot be represented by a welfare functionCompetitive market process is equitable because it rewards those who are most able and work hardestBelieves competitive equilibrium would be most equitable59Social Welfare FunctionsThe Rawlsian view is t

54、hat individuals dont know what their endowment will beRawls argues that if you dont know your own fate, you will opt for the system in which the least well-off person is treated reasonably wellThe most equitable allocation maximizes the utility of the least well-off person in society60Social Welfare

55、 FunctionsAn egalitarian view believes that goods should be equally shared by all individuals in societyCould have situation where more productive people are rewarded, thereby producing more goods and then having more to reallocate to all of society61Four Views of EquityEgalitarianAll members of soc

56、iety receive equal amount of goodsRawlsianMaximize the utility of the least-well-off personUtilitarianMaximize the total utility of all members of societyMarket - OrientedThe market outcome is the most equitable62Equity and Perfect CompetitionA competitive equilibrium can occur at any point on the c

57、ontract curve depending on the initial allocationSince not all competitive equilibriums are equitable, we rely on the government to help reach equity by redistributing incomeTaxesPublic services63Equity and Perfect CompetitionMust a society that wants to be more equitable necessarily operate in an i

58、nefficient world?Second Theorem of Welfare EconomicsIf individual preferences are convex, then every efficient allocation (every point on the contract curve) is a competitive equilibrium for some initial allocation of goods64Equity and Perfect CompetitionAny equilibrium that is equitable can be achi

59、eved by redistributing resources and may be efficientTypical ways to redistribute goods, however, are costlyTaxes lead to bad incentivesFirms devote fewer resources to production in order to avoid taxesEncourage individuals to work less65Efficiency in ProductionFrom the discussion of exchange of two

60、 goods, we can extend to the efficient use of inputs used for productionAssume:Two fixed inputs: capital and laborProduce same two goods: food and clothingMany consumers own inputs to production and earn income from selling themIncome allocated between goods66Efficiency in ProductionUsing the Edgewo