ECON1101 Chapter Notes - Chapter 4: Pareto Efficiency, Aggregate Demand, Perfect Competition
The Aggregate Demand (or Supply) represents the horizontal sum of the individual
demand (or supply) curves.
Excess Supply: Depicts a situation where the quantity supplied is larger than
the quantity demanded.
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Excess Demand: Depicts a situation where the quantity demanded is larger
than the quantity supplied.
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The Equilibrium Price (Quantity) represents the price (quantity) such that the
quantity supplied equals the quantity demanded.
Pareto efficiency is a situation in which it is impossible to make any individual
better off without making at least one another individual worse off.
A perfectly competitive market's equilibrium is pareto efficient.
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Total surplus is maximised.
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There is no pareto improving transaction = no possible transaction that would
make someone better off without harming someone else.
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A pareto improving transaction is a transaction where all parties involved are
better off.
The Invisible Hand Principle states that individuals' independent efforts to
maximise their gains (profits for sellers; utility for buyers) will generally be
beneficial for society and result in the socially optimal allocation of resources.
Chapter 4: Demand & Supply, An Equilibrium
Analysis
Monday, 16 April 2018
8:00 pm