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Intermediate Microeconomics

7. General Equilibrium

It is typically the case that when one market is impacted by an environmental change other markets are affected as well. Thus far, we have conducted what is referred to as partial-equilibrium analysis; that is, we have only considered the effect of an exogenous event on the outcome in a single market. General-equilibrium analysis considers the effect of an event on the equilibrium in all markets. Sometimes partial-equilibrium analysis is sufficient, but that depends on the question of interest. A tax on oranges is unlikely to have a meaningful effect on the equilibrium in the market for airplanes. However, there are instances in which a general-equilibrium analysis is warranted. It is often the case that economists examine several markets at once, rather than all markets. A tax on oranges might not affect the market for airplanes, but such a tax likely affects the equilibrium outcomes in the markets for kiwi, grapefruit, apples, and so on. In these Screencasts/Pencasts, we cover pure exchange (trade without production), depict an Edgeworth box, use an Edgeworth box to illustrate that trade between two people can benefit both, describe the meaning of Pareto-efficient allocations, illustrate a set of Pareto-efficient allocations using a contract curve, and examine market exchange.

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Pure Exchange

This Pencast describes what is meant by pure exchange. In addition, initial endowments and final allocations are discussed. [Play Pencast]

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Edgeworth Box

This Pencast illustrates how to contruct an Edgeworth Box. [Play Pencast]

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Edgeworth Box and Trade

This Pencast uses an Edgewort Box to show that trade between two people can confer benefits on both parties. [Play Pencast]

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Pareto Efficient Allocations

This Pencast presents the calculus conditions that describe Pareto-efficient allocations. A Pareto-efficient allocations makes each agent as well off as possible, given the utility of the other agent(s). [Play Pencast]

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Contract Curve (or Pareto Set)

This Pencast illustrates how a contract curve and the tangency points of the marginal rates of substitution for two representative consumers form a set of Pareto-efficient allocations. [Play Pencast]

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Market Exchange

This Pencast describes the basics of market exchange, including the concepts of gross and net demands. [Play Pencast]

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Market Exchange: Disequilibrium

This Pencast illustrates a situation in which market is not in equilibrium, which does not generate a Pareto-efficient allocation. [Play Pencast]

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Market Exchange: Equilibrium

This Pencast illustrates a situation in which the market is in equlibrium, which is a Pareto-efficient allocation. [Play Pencast]

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