Economics 2160A/B Study Guide - Midterm Guide: Pareto Efficiency, Income Distribution, Perfect Competition

• School: Western University
• Department: Economics
• Course: Economics 2160A/B
• Professor: Emilie Rivers

Document Summary

Pareto effi(cid:272)ie(cid:374)t allo(cid:272)atio(cid:374) of resour(cid:272)es (cid:449)ill e(cid:373)erge (cid:449)/o go(cid:448)"t i(cid:374)ter(cid:448)e(cid:374)tio(cid:374) All producers, consumers perfectly competitive (no mkt power) Attain pareto efficiency by making suitable assignments of initial endowment and then allo(cid:449)i(cid:374)g free trade (cid:449)ithi(cid:374) so(cid:272)iet(cid:455)"s (cid:373)e(cid:373)(cid:271)ers. Problem choosing point for our initial endowment (except taxes) But 1) taxation creates inefficiencies 2) non-comp mkts exists 3) informal mkts exists. Present value (if t = ) pv = r/r. Or pv = r + r/r (cid:894)if there"s pa(cid:455)(cid:373)e(cid:374)t r i(cid:374) period 0/toda(cid:455)(cid:895) r is low pv gets bigger//future r is high pv gets smaller//present. Pv = ro + r/r (inflation cancels out as long as both streams (r and r) are adjusted for inflation) But if r (benefit) is a fixed nominal amount 13743 Partial equilibrium looks at single market which tax is being imposed. Ignores feedback/flow-through effects or ramifications in other markets. General equilibrium analysis looks at impact of tax including any effects or ramifications on other markets.