Lecture 5.2 General Equilibrium Analysis

Question 1

Market test

Answer 1

Does the consumers are willing to pay for a good or service exceed its cost for production

Question 2

Partial equilibrium approach

Answer 2

Focuses on a single market and assumes away interactions with other markets

Question 3

Efficiency

Answer 3

Efficiency requires that the marginal benefit of producing one more unit of the good equals its marginal cost

Question 4

Market demand curve

Answer 4

Indicates total quality of the good that individuals are willing to purchase at each price

Question 5

Market supply curve

Answer 5

Indicates the total quantity of the good that producers in the economy are willing to sell at each price

Question 6

Marginal rate of substitution (MRS)

Answer 6

How much of good 2 the consumer is willing to give up in exchange for one more unit of good 1

Question 7

MRS vs P1/P2

Answer 7

MRS - Rage at which the consumer is willing to trade the two goods
P1/P2- The rate at which the consumer can trade one good for the other in the market