lecture 1 Flashcards
general equilibrium and Pareto efficiency
Partial equilibrium analysis
the study of how equilibrium is determined in one market in isolation
what is the MRS
The marginal rate of substitution is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility
what conditions must be met for a market to efficient
consumption and production must be efficient
what is Pareto efficiency
when goods cannot be reallocated among people so that at least one person is better off and no one is worse off
how is Pareto efficiency met in an Edgeworth box
draw and explain
when both individuals MRS’s are equal meaning a core no longer exists.
what is the contract curve
is the set of points representing the final allocation of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods.
