ECON201 Lecture Notes - Lecture 7: Fundamental Theorems Of Welfare Economics, Pareto Efficiency, Budget Constraint

• School: University of Waterloo
• Department: Economics
• Course: ECON201
• Professor: Miko Pakkelon

Document Summary

Microeconomic theory 1: behavior, interactions, and economic policy, winter 2012, Up until now we have focused on behavior. We have learned how economists model decision making by individuals and (cid:133)rms. We will now turn our focus to interactions. We will learn how economists model interactions among individuals or (cid:133)rms. We continue to assume that behavior is governed by optimization. Therefore, preferences and budget constraints form the starting point for our analyses of interactions among individuals. In classes 9-10 our objective is to show that(cid:150)under certain assumptions(cid:150)self-interest and interactions through markets can yield a good allocation. In the process we will learn what exactly do economists have in mind when they talk about good vs. bad allocations. In later classes we will learn that under other assumptions taxes and other forms of govern- ment policy can improve upon allocations determined by self-interest and markets alone.