It refers to a state of simultaneous equilibrium in all goods and factor markets.
Mıcroeconomıc Theory (ENG) — Ünite 7 Soru-Cevap
Mıcroeconomıc Theory (ENG) (IKT205U) soru-cevapları.
What does the term of the term general equilibrium refers to?
Is there a surplus or shortage at the general equilibrium of economy?
No. since general equilibrium is a state where markets for all products are cleared all at once, while demand for land, labor and (physical) capital (or the so-called factors of production) used to produce those products is equal to their respective supplies at the same time.
What is general equilibrium analysis about?
General equilibrium analysis is concerned with comparison of prices, quantities supplied and demanded, and the resources (factors of production) used in the production of different products before and after shocks that disturb an initial equilibrium.
When the market is cleared?
Once supply and demand are equalized and the market is cleared, there remains no reason for the market clearing price to change.
When one can use the partial equilibrium framework?
Partial equilibrium framework allows for an analysis of the effects of such changes in prices of substitutes or complements on the initial equilibrium in a given market. It also allows for an analysis of the effects of certain other developments in the rest of the economy on this initial equilibrium.
In examining the producers’ equilibrium, how many goods and production factors we use?
We consider an economy that produces two goods by employing two factors of production, capital and labor.
In examining the producers’ equilibrium, what is the market structure that goods are produced and sold?
We assume that both goods are produced by a single (representative) firm and sold in perfectly competitive markets.
- How do we obtain Edgeworth Box?
By turning the isoquant first around its horizontal axis, and then around its vertical axis, and moving it such a way to form a rectangle, we obtain the so-called Edgeworth Box.
What is the Pareto efficient points corresponding to?
In general, Pareto efficient points correspond to efficient allocations of all available resources at which it is impossible to increase the output of one good without reducing the output of the other.
Which points within the Edgeworth Box indicate the Pareto efficient allocations?
All points of tangency between isoquants within the Edgeworth Box correspond to Pareto efficient allocations.
What is contract curve?
All points of tangency between isoquants within the Edgeworth Box correspond to Pareto efficient allocations. These points trace out the so-called contract curve.
Why are all points on the contract curve is superior to points off the contract curve?
Because points off the contract curve represents inefficient points.
What is the connection between each point on the contract curve and a point on the production possibilities frontier?
Each point on the contract curve corresponds to a point on the so-called production possibilities frontier or PPF in short.
What characterize the consumer preferences?
The (social) utility function U (CX, CY) characterize the consumer preferences.
What do the budget constraint with income equal to?
The income, M, entering the budget constraint will be equal to total factor income: M = wL + rK received by the household.
Why does the household take prices of both goods and factors as given?
Because they are all determined in perfectly competitive markets.
What is the slope of budget constraint?
It equls to relative prices of goods. That is, − (pX / pY).
What is comparative static analysis?
The comparison of the equilibrium values of the twelve endogenous variables in the model (LX , LY , KX , KY , X, Y, w, r, I, CX, CY and PX/PY) before and after an exogenous shock for the purpose of measuring the changes resulting from that shock is called comparative static analysis.
What is the Walras Law?
Walras’ Law which states that the value of excess demands in all markets in the model always adds up to zero. Thus, when n–1 markets in the model are in equilibrium, the nth market will also have to be in equilibrium.
What is the main future of output mix at the general equilibrium?
At the general equilibrium represents an output mix that makes not only (profit maximizing) producers, but also consumers happy.