Econ 3102- 5

Front 1

Competitive Equilibrium steps

Back 1

Representative consumer optimizes given market prices.
Representative firm optimizes given market prices.
The labor market clears.
The government budget constraint is satisfied, or G = T.

Front 2

Income-Expenditure Identity

Back 2

Front 3

Equation 5.3

Back 3

Front 4

The Production Function In equilibrium

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Front 5

Figure 5.2A The Production Function and the Production Possibilities Frontier

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Front 6

Figure 5.3 Competitive Equilibrium

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Front 7

Equation 5.6: Key Properties of a Competitive Equilibrium

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Front 8

First Welfare Theorem

Back 8

First Welfare Theorem: Under certain conditions, a competitive equilibrium is Pareto optimal.

Front 9

Under certain conditions, a Pareto optimum is a competitive equilibrium.

Back 9

Second Welfare Theorem

Front 10

Figure 5.5 Using the Second Welfare Theorem to Determine a Competitive Equilibrium

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Front 11

Effects of an Increase in G

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Essentially a pure income effect

C decreases, l decreases, Y increases, w falls

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Effects of an Increase in z (or an increase in K)

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PPF shifts out, and becomes steeper – income and substitution effects are involved.


C increases, l may increase or decrease, Y increases, w increases

Front 13

Equation 5.7: Production function without capital

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Front 14

Equation 5.8: Production Possibilities Frontier

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Front 15

Equation 5.9: Consumer’s budget constraint

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Front 16

Equation 5.10: Profits for the firm

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Front 17

Equation 5.11: The consumer’s budget constraint in equilibrium

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