Académique Documents
Professionnel Documents
Culture Documents
Perfect Competition
Management
YL6: 00.03
GROUP 2:
OUTLINE
OUTLINE ............................................................................................................... 1
I. INTRODUCTION .............................................................................................. 1
II. MARKET ADJUSTMENT TO CHANGES IN DEMAND ................................ 1
III. FORMATTING ................................................................................................ 1
HERE YOU WILL FIND THE FORMATTING DETAILS, AS WELL AS THE Figure 1: Adjustment in an Economy with Two Sectors
SHORTCUTS TO FORMATTING AND EDITING THE TEMPLATE. .... ERROR!
BOOKMARK NOT DEFINED.
A. MAIN HEADERS ........................... ERROR! BOOKMARK NOT DEFINED. A new general equilibrium is not reached until equilibrium is
ALIGNMENT: CENTERED ................................................................................... 2 reestablished in all markets
QUICK FORMAT ................................................................................................... 2 If costs of production remain unchanged, this equilibrium
B. SUB HEADERS ........................................................................................... 2
C. SUB SUBHEADERS ................................................................................... 2
occurs at the initial prices, but with more resources and
D. CONTENT .................................................................................................... 2 production in X and fewer in Y
HIGHLIGHTS ........................................................................................................ 3
REVIEW CENTER ................................................................................................. 3 Increasing Cost Industry
FREEDOM SPACE ................................................................................................ 3
REFERENCES ........................................................................................................ 3
o Expansion in X drives up the prices of resources used
specifically in X, the cost curves in X will shift upward and
I. INTRODUCTION the final postexpansion zero-profit equilibrium will occur
at a higher price.
Input and output markets cannot be considered as if they
III. ALLOCATIVE EFFICIENCY AND COMPETITIVE
were separate entities or as if they operated independently.
EQUILIBRIUM
Although it is important to understand the decisions of
individual firms and households and the functioning of Criteria used by economists to judge the performance of
individual markets, we now need to add it all up, look at the economic systems and to evaluate alternative economic
operation of the system as a whole. policies
Partial Equilibrium Analysis 1. Efficiency
o The process of examining the equilibrium conditions in 2. Equity
individual markets and for households and firms 3. Growth
separately 4. Stability
General Equilibrium
Efficient Economy
o Condition that exists when all markets in an economy are
in simultaneous equilibrium o Economy that produces the things that people want at a
o Disruption of equilibrium in one market may disturb the least cost
o The trick is defining the maximum well-being
equilibrium in other markets as well
Efficiency
PARETO EFFICIENCY OR PARETO OPTIMALITY
o The condition in which the economy is producing what
people want at least possible cost A condition in which no change is possible that will make
some members of society better off without making some
II. MARKET ADJUSTMENT TO CHANGES IN DEMAND other members of society worse off.
All economics are dynamic; change occurs all the time Allocative efficiency
Figure 1 A change is said to be efficient when it makes members of
o Initially, demand for X shifts from D0X to D1X. This shift the society better off without making other members of
pushes the price of X up to P1Y creating profits. society worse off
o Demand for Y shifts down from D0Y to D1Y, pushing the An efficient or Pareto optimal system is one in which no
price of Y down to PY and creating losses. such changes are possible
o Firms have an incentive to leave sector Y and an 2 Questions to be answered:
incentive to enter sector X. o What do we mean by better off
o Exiting sector Y shifts supply in that industry to S1Y, o How do we account for changes that make some people
raising price and eliminating losses. Entry shifts supply in better and others worse off?
X to S1X thus reducing and eliminating profits.
D. CONTENT
HIGHLIGHTS
Feel free to add anything pertinent to the lesson here. It can be
mnemonics, or important information we could use, additional
references, or the like
REVIEW CENTER
1. The questions?
a) Helvetica c) Four choices
b) Size 9 d) This is a table with no
borders
2. Question
a) c)
b) d)
3. Question
a) c)
b) d)
4. Question
a) c)
b) d)
5. Question
a) c)
b) d)
Answers: a,b,c,d,e
FREEDOM SPACE
Add what you like, pictures, comics, stories, etc
REFERENCES