general equilibrium and economic welfare

Question 1

when is a study of general equilibrium useful

Answer 1

when studying substitutes complements etc…

Question 2

what is a partial equilibrium analysis

Answer 2

studying the effects of a shock in only one market

Question 3

is a full equilibrium analysis

Answer 3

studying the effects of a shock in all relative markets

Question 4

when will a minimum wage not cause a rise in unemployment

Answer 4

if the minimum wage is only in certain sectors not all

Question 5

what happens in the uncovered sector when a minimum wage is introduced in to a covered sector

Answer 5

supply of labour increases and wage decreases

Question 6

what is the supply curve of labour in the uncovered sector and why

Answer 6

a residual supply curve as it represents the quantity the market supplies that is not met by demanders

Question 7

what is the equation for residual supply in the uncovered market

Answer 7

Su(w) = S(w) - Dc(w)

Question 8

what is an endowment

Answer 8

an entities original allocation of goods

Question 9

what does the overlap of two indifference curves show

Answer 9

the bundle of good that both parties would prefer

Question 10

what does it mean when one parties indifference curve is tangent to anothers

Answer 10

it is on the contract curve and no further trades can be made that will benefit both parties

Question 11

what is a necessary stipulation where the indifference curves are tangent

Answer 11

the MRS of the two lines are equal

Question 12

when does a price line lead to a competitive equilibrium

Answer 12

when the indifference curves and price line are all tangent to each other at one point (gradients, MRS)

Question 13

what is the equation at the efficient point on a budget line

Answer 13

MRSx = Px/Py = MRSy

Question 14

what does a PPF show

Answer 14

a all combos of 2 goods that an entity can produce in a period of time

Question 15

what is the slope of the PPF

Answer 15

MRT

Question 16

what is comparative advantage

Answer 16

when an entity can produce a good at a lower opportunity cost to another

Question 17

when is the PPF curve smooth

Answer 17

when there are many producers

Question 18

how does MRT relate to MC of both goods

Answer 18

MRT = -MCx/MCy

Question 19

at what point are the optimal Q of goods produced

Answer 19

MRS = MRT

Question 20

what is the role of the government when dealing with efficiency and equity

Answer 20

determine how much is produced and goods are allocated, to redistribute wealth

Question 21

how should the government allocate resources

Answer 21

to the pareto efficient point

Question 22

what do governments aim for when deciding how to allocate goods

Answer 22

welfare maximisation

Question 23

how can an government decide how to allocate resources

Answer 23

majority voting

Question 24

what is a problem with majority voting

Answer 24

if each individual who votes has different transitive views on the allocation of goods leading to no output being socially preferred

Question 25

how does the problem with majority voting work

Answer 25

a majority prefer a>b but a majority also prefer c>b and a>c

Question 26

what is the welfare function

Answer 26

w = U1 + U2… Un

Question 27

what is the welfare function if different weights are assigned to different individuals

Answer 27

w = a1U1 + a2U2…. anUn