general equilibrium and economic welfare Flashcards
when is a study of general equilibrium useful
when studying substitutes complements etc…
what is a partial equilibrium analysis
studying the effects of a shock in only one market
is a full equilibrium analysis
studying the effects of a shock in all relative markets
when will a minimum wage not cause a rise in unemployment
if the minimum wage is only in certain sectors not all
what happens in the uncovered sector when a minimum wage is introduced in to a covered sector
supply of labour increases and wage decreases
what is the supply curve of labour in the uncovered sector and why
a residual supply curve as it represents the quantity the market supplies that is not met by demanders
what is the equation for residual supply in the uncovered market
Su(w) = S(w) - Dc(w)
what is an endowment
an entities original allocation of goods
what does the overlap of two indifference curves show
the bundle of good that both parties would prefer
what does it mean when one parties indifference curve is tangent to anothers
it is on the contract curve and no further trades can be made that will benefit both parties
what is a necessary stipulation where the indifference curves are tangent
the MRS of the two lines are equal
when does a price line lead to a competitive equilibrium
when the indifference curves and price line are all tangent to each other at one point (gradients, MRS)
what is the equation at the efficient point on a budget line
MRSx = Px/Py = MRSy
what does a PPF show
a all combos of 2 goods that an entity can produce in a period of time
what is the slope of the PPF
MRT
what is comparative advantage
when an entity can produce a good at a lower opportunity cost to another
when is the PPF curve smooth
when there are many producers
how does MRT relate to MC of both goods
MRT = -MCx/MCy
at what point are the optimal Q of goods produced
MRS = MRT
what is the role of the government when dealing with efficiency and equity
determine how much is produced and goods are allocated, to redistribute wealth
how should the government allocate resources
to the pareto efficient point
what do governments aim for when deciding how to allocate goods
welfare maximisation
how can an government decide how to allocate resources
majority voting
what is a problem with majority voting
if each individual who votes has different transitive views on the allocation of goods leading to no output being socially preferred
how does the problem with majority voting work
a majority prefer a>b but a majority also prefer c>b and a>c
what is the welfare function
w = U1 + U2… Un
what is the welfare function if different weights are assigned to different individuals
w = a1U1 + a2U2…. anUn
