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  • Cited by 2
  • Print publication year: 2011
  • Online publication date: June 2012

A - General equilibrium theory: Getting acquainted

Summary

Chapter 1 begins to describe the concept of general equilibrium (simultaneous price-guided clearing of several goods markets) and gives some of the colorful history of its development over the nineteenth and twentieth centuries. Chapters 2 and 3 introduce two elegantly simple and insightful models of general equilibrium that are simple enough to present in elementary classes and rich enough to provide insights in advanced treatments:

the Robinson Crusoe model, which emphasizes the interaction of the consumption and production sides of the economy and

the Edgeworth box, which investigates bargaining and equilibrium in the exchange of commodities among consumers.

Chapters 4 and 5 include additional demonstrations:

a characterization of the Pareto efficiency of general competitive equilibrium in a 2 × 2 × 2 model (2 households, 2 outputs, 2 inputs) and

a sample proof of existence of market general equilibrium, describing the structure of demand and supply functions needed to establish that prices can adjust so that markets can clear.

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