Competitive Equilibrium

Question 1

Exogenous variables are ______

Answer 1

K, G, z

Question 2

Endogenous variables are

Answer 2

N, c, T, w and r

Question 3

Assumptions about the government

Answer 3

Balanced budget G = T

HH does not value G

Question 4

HH and firm takes _____ as given. However, we can find their equilibrium values.

Answer 4

w and r

Question 5

Competitive equilibrium is an _______ (c, N, Y, K), a ________ (w, r) and a ________ (G, T) such that

1) ______
2) ______
3) ______
4) ______

Answer 5

allocation; price system, government policy

1) given price system and gov policy, HH maximise utility by choice of c and N
2) given price system and gov policy, firm maximise profits by choice of K and N
3) balanced budget G = T
4) Markets clear
a) labour N^S = N^D = N
b) capital K = K bar
c) goods Y = zF(K, N) = c + G

Question 6

Assumptions in model

Answer 6

Closed economy –> NX = 0

Static –> I = 0

Question 7

To solve for competitive equilibrium, _______

Answer 7

find w to clear labour market

Question 8

MRS is _______ in l and MPN is ________ in l

Answer 8

decreasing; increasing

Question 9

To convert production function to PPF,
1)
2)

Answer 9

1) Y = zF(K bar, N) –> Y = zF(K bar, h - l)

2) Y = zF(K bar, h - l) –> c + G = zF(K bar, h - l) –> c = zF(K bar, h - l) - G

Question 10

Production function graph is __ vs __

Slope is ___

Answer 10

Y vs N

MPN

Question 11

Slope of Y vs l is ____

Answer 11

• MPN

Question 12

Graphically, CE occurs when ____ are _____ to each other

Answer 12

IC, BC and PPF; tangent

Question 13

Under some conditions, at CE, MRS = MPN = ___

Answer 13

w

Question 14

To obtain PPF, ______ Y vs l curve by _____

Answer 14

shift down; G