微观经济学英文课件：chapter-16 General Equilibrium and Economic Efficiency

1、Chapter 16General Equilibrium and Economic Efficiency1Chapter 1Topics to be DiscussedGeneral Equilibrium AnalysisEfficiency in ExchangeEquity and EfficiencyEfficiency in Production2Chapter 1Topics to be DiscussedThe Gains from Free TradeOn Overview-The Efficiency of Competitive MarketsWhy Markets Fa

2、il3Chapter 1General Equilibrium AnalysisPartial equilibrium analysis presumes that activity in one market is independent of other markets.4Chapter 1General Equilibrium AnalysisGeneral equilibrium analysis determines the prices and quantity in all markets simultaneously and takes the feedback effect

3、into account. 5Chapter 1General Equilibrium AnalysisA feedback effect is a price or quantity adjustment in one market caused by price and quantity adjustments in related markets.6Chapter 1General Equilibrium AnalysisTwo Interdependent Markets-Moving to General EquilibriumScenarioThe competitive mark

4、ets of:Videocassette rentalsMovie theater tickets7Chapter 1DVDMTwo Interdependent Markets: Movie Tickets and Videocassette RentalsPriceNumberof VideosPriceNumber ofMovie TicketsSMSV$6.00QMQV$3.00$6.35QMS*MAssume the governmentimposes a $1 tax on each movie ticket.QVDV$3.50General Equilibrium Analysi

5、s:Increase in movie ticket pricesincreases demand for videos.8Chapter 1DVDMTwo Interdependent Markets: Movie Tickets and Videocassette RentalsPriceNumberof VideosPriceNumber ofMovie TicketsSMSV$6.00QMQV$3.00The Feedback effects continue.$3.58Q*VD*V$6.35QMD*M$6.82Q*MS*MQVDV$3.50DMQ”M$6.75The increase

6、 in the priceof videos increases the demand for movies.9Chapter 1ObservationWithout 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 Videoc

7、assette Rentals10Chapter 1QuestionsWhat 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 Videocass

8、ette Rentals11Chapter 1The Interdependence of International MarketsBrazil and the United States export soybeans and are, therefore, interdependent.Brazil limited exports in the late 1960s and early 1970s.Eventually the export controls were to be removed, and Brazilian exports were expected to increa

9、se.12Chapter 1Partial AnalysisBrazilian domestic soybean price will fall and domestic demand for soybean products would increase.The Interdependence of International Markets13Chapter 1General AnalysisIn the U.S. the price of soybeans and output would increase; U.S. exports would increase and Brazili

10、an exports would fall (even after regulations ended).The Interdependence of International Markets14Chapter 1Efficiency 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 parti

11、es is mutually beneficial.15Chapter 1Efficiency 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.16Chapter 1The Advantage of TradeJame

12、s7F, 1C-1F, +1C6F, 2CKaren3F, 5C+1F, -1C4F, 4CIndividualInitial AllocationTradeFinal AllocationKarens MRS of food for clothing is 3.Jamess 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

13、 efficient allocation occurs when the MRS is equal.17Chapter 1Efficiency in ExchangeThe Edgeworth Box DiagramWhich trades can occur and which allocation will be efficient can be illustrated using a diagram called an Edgeworth Box.18Chapter 1Exchange in an Edgeworth Box10F0K0J6C10F6CJamessClothingKar

14、ensClothingKarens FoodJamess 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. 19Chapter 1Efficiency in ExchangeEfficient AllocationsIf Jamess and Karens MRS are

15、 the same at B the allocation is efficient.This depends on the shape of their indifference curves.20Chapter 1AA: UJ1 = UK1,but the MRSis not equal.All combinationsin the shadedarea arepreferred to A.Gains fromtradeKarensClothingKarens FoodUK1UK2UK3JamessClothingJamess FoodUJ1UJ2UJ3BCDEfficiency in E

16、xchange10F0K0J6C10F6C21Chapter 1AKarensClothingKarens FoodUK1UK2UK3JamessClothingJamess FoodUJ1UJ2UJ3BCDEfficiency in Exchange10F0K0J6C10F6CIs B efficient?Hint: is theMRS equalat B?Is C efficient?and D?22Chapter 1Efficiency in ExchangeAKarensClothingKarens FoodUK1UK2UK3JamessClothingJamess FoodUJ1UJ

17、2UJ3BCD10F0K0J6C10F6CEfficient 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 an

18、d the allocation is efficient.23Chapter 1Efficiency 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.24Chapter 1The Contract Curve0JJamessClothingKa

19、rensClothing0KKarens FoodJamess FoodEFGContractCurveE, F, & G arePareto efficient . If a change improvesefficiency, everyonebenefits.25Chapter 1Efficiency in ExchangeObservations1)All points of tangency between the indifference curves are efficient.2)The contract curve shows all allocations that are

20、 Pareto efficient.Pareto efficient allocation occurs when trade will make someone worse off.26Chapter 1Efficiency 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 th

21、an the gain to consumers27Chapter 1Efficiency 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.28Chapter 1Efficiency

22、 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)29Chapter 1UK1UK2PPrice LinePPP is the price lineand shows possiblecombinations; slope is -1UJ1UJ2Competitive Equilibriu

23、m10F0K0J6C10F6CJamessClothingKarensClothingKarens FoodJamess 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).30Chapter 1UK1U

24、K2PPrice LinePUJ1UJ2Competitive Equilibrium10F0K0J6C10F6CJamessClothingKarensClothingKarens FoodJamess FoodAt the prices chosen:Quantity fooddemanded (Karen)equals quantityfood supplied (James)-competitiveequilibrium.At the prices chosen:Quantity clothing demanded(James) equals quantityclothing supp

25、lied (Karen)-competitive equilibrium.CA31Chapter 1Efficiency in ExchangeScenarioPF and PC = 3Jamess MRS of clothing for food is 1/2.Karens 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 food32Chapter 1Efficie

26、ncy in ExchangeQuestionsHow would the market reach equilibrium?How does the outcome from the exchange with many people differ from the exchange between two people?33Chapter 1Efficiency in ExchangeThe Economic Efficiency of Competitive MarketsIt can be seen at point C (as shown on the next slide) tha

27、t the allocation in a competitive equilibrium is economically efficient.34Chapter 1Competitive Equilibrium10F0K0J6C10F6CJamessClothingKarensClothingKarens FoodJamess FoodPPrice LineUJ1UK1APUJ2UK2C35Chapter 1Efficiency in ExchangeObservations concerning C:1)Since the two indifference curves are tange

28、nt, the competitive equilibrium allocation is efficient.2)The MRSCF is equal to the ratio of the prices, or MRSJFC = PC/PF = MRSKFC.36Chapter 1Efficiency in ExchangeObservations concerning C:3)If the indifference curves were not tangent, trade would occur.4)The competitive equilibrium is achieved wi

29、thout intervention.37Chapter 1Efficiency 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)38Chapter 1Effic

30、iency in ExchangePolicy IssuesWhat is the role of government?39Chapter 1Equity and EfficiencyIs an efficient allocation also an equitable allocation?Economists and others disagree about how to define and quantify equity.40Chapter 1Equity and EfficiencyThe Utility Possibilities FrontierIndicates the

31、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.41Chapter 1H*Movement from one combination to another (E to F) reduces one persons utility.*All points on the frontier are efficient. Utility P

32、ossibilities FrontierJamess UtilityOJOKEFGKarensUtilityL*Any point inside the frontier (H) is inefficient.*Combinations beyond the frontier (L) are not obtainable.Lets compareH to E and F.42Chapter 1Equity and EfficiencyE & F are efficient.Compared to H, E & F make one person better off without maki

33、ng the other worse off.Jamess UtilityKarensUtilityOJOKEFHG43Chapter 1Equity and EfficiencyIs H equitable?Assume the only choices are H & GIs G more equitable? It depends on perspective.At G James total utility Karens total utilityJamess UtilityKarensUtilityOJOKEFHG44Chapter 1Equity and EfficiencyIs

34、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.Jamess UtilityKarensUtilityOJOKEFHG45Chapter 1Equity and EfficiencySocial Welfare Fun

35、ctionsUsed to describe the particular weights that are applied to each individuals utility in determining what is socially desirable46Chapter 1Four Views of EquityEgalitarianAll members of society receive equal amounts of goodsRawlsianMaximize the utility of the least-well-off person47Chapter 1Four

36、Views of EquityUtilitarianMaximize the total utility of all members of societyMarket-orientedThe market outcome is the most equitable48Chapter 1Equity and EfficiencyThe Social Welfare Function and EquityEquity is dependent on a normative priority ranging from Egalitarian to Market-orientation.49Chap

37、ter 1Equity and EfficiencyEquity and Perfect CompetitionA competitive equilibrium leads to a Pareto efficient outcome that may or may not be equitable.50Chapter 1Equity and EfficiencyPoints on the frontier are Pareto efficient.OJ & OK are perfect unequal distributions and Pareto efficient.To achieve

38、 equity (more equal distribution) must the allocation be efficient?Jamess UtilityKarensUtilityOJOK51Chapter 1Equity and EfficiencySecond Theorem of Welfare EconomicsIf individual preferences are convex, then every efficient allocation is a competitive equilibrium from some initial allocation of good

39、s.52Chapter 1Equity and EfficiencySecond Theorem of Welfare EconomicsConsider the cost of programs to redistribute income and the trade off between equity and efficiency.53Chapter 1Efficiency in ProductionAssumeFixed total supplies of two inputs; labor and capitalProduce two products; food and cloth

40、ingMany people own and sell inputs for incomeIncome is distributed between food and clothing54Chapter 1Efficiency 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 e

41、ffect.Use general equilibrium analysis with feedback effects55Chapter 1Efficiency in ProductionProduction in the Edgeworth BoxThe Edgeworth box can be used to measure inputs to the production process.56Chapter 1Efficiency in ProductionProduction in the Edgeworth BoxEach axis measures the quantity of

42、 an inputHorizontal: Labor, 50 hoursVertical: Capital, 30 hoursOrigins measure outputOF = FoodOC = Clothing57Chapter 160F50F40L30LLabor in clothing productionEfficiency in Production50L0C0F30KCapitalin clothingproduction20L10L20K10K10L20L30L40L50LCapitalin foodproduction10K20K30K30C25C10C80FLabor in

43、 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 contrac

44、t curve shows all combinations that are efficient58Chapter 1Efficiency in ProductionProducer Equilibrium in a Competitive Input MarketCompetitive markets create a point of efficient production. 59Chapter 1Efficiency in ProductionCompetitive Market ObservationsThe wage rate (w) and the price of capit

45、al (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.60Chapter 160F50F40L30LLabor in clothing productionEfficiency in Production50L0C0F

46、30KCapitalin clothingproduction20L10L20K10K10L20L30L40L50LCapitalin foodproduction10K20K30K30C25C10C80FLabor in Food ProductionBCDADiscuss the adjustment process that wouldMove the producers from A to B or C.61Chapter 1Efficiency in ProductionThe Production Possibilities FrontierShows the various co

47、mbinations of food and clothing that can be produced with fixed inputs of labor and capital.Derived from the contract curve62Chapter 1Production Possibilities FrontierFood(Units)Clothing(units)OF & OC are extremes.Why is the productionpossibilities frontierdownward sloping? Why is it concave?B, C, &

48、 D areother possiblecombinations.AA is inefficient. ABCtriangle is also inefficientdue to labor marketdistortions.60100OFOCBCD63Chapter 1Production Possibilities FrontierFood(Units)Clothing(units)60100OFOCABCDB1C1FD2C1FMRT = MCF/MCCThe marginal rate oftransformation (MRT) is the slope of thefrontier

49、 at each point.64Chapter 1Efficiency in ProductionOutput EfficiencyGoods must be produced at minimum cost and must be produced in combinations that match peoples willingness to pay for them.Efficient output and Pareto efficient allocationOccurs where MRS = MRT65Chapter 1Efficiency in ProductionAssum

50、eMRT = 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)66Chapter 1IndifferenceCurveOutput EfficiencyFood(Units)Clothing(units)60100ProductionPossibilitiesFrontierMRS = MRTCHow d

51、o you find theMRS = MRT combinationwith many consumerswho have differentindifference curves?67Chapter 1Efficiency in ProductionEfficiency in Output MarketsConsumers Budget AllocationProfit Maximizing Firm 68Chapter 1U2Competition and Output EfficiencyFood(Units)Clothing(units)60100AC1F1BC2F2A shorta

52、ge 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.U169Chapter 1The Gains from Free TradeComparative AdvantageCountry 1 has a comparative advantage ove

53、r 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 2.70Chapter 1The Gains from Free TradeComparative AdvantageComparative advantag

54、e 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 wine71Chapter 1Hours of Labor Required to ProduceHolland12Italy63Cheese(1 l

55、b.)Wine(1 gal.)Holland has an absoluteadvantage in both products.72Chapter 1Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Hollands comparative advantageover Italy is in cheese: the cost of cheeseis 1/2 the cost of wine and Italys cost of cheese is twice the cost of wine.

56、73Chapter 1Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Italys comparative advantage is wine,which is half the cost of cheese.74Chapter 1Hours of Labor Required to ProduceHolland12Italy63Cheese(1 lb.)Wine(1 gal.)Without Trade: Assume PW = PC in Holland & Italy.Holland h

57、as 24 hrs. of labor-max. wine = 12 gals &max. cheese = 24 lbs. or a combination75Chapter 1Hours 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.76Chapter 1Pre-trade prices

58、U1The 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 wholose

59、s from trade?77Chapter 1The 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

60、to 1.68 million cars.78Chapter 1Measuring 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 Quotas79Chapter 1Measuring the Impact of the VER3)U