【正文】 ugh bargaining ?Trade for 1 unit of food will fall between 189。 unit if clothing for 1 unit of food 169。2020 Pearson Education, Inc. Chapter 16 19 The Advantage of Trade ?Karen has a lot of clothing and little food ?MRS of food for clothing is 3 ?To get 1 unit of food, she will give up 3 units of clothing ?James’ MRS of food for clothing is only 189。2020 Pearson Education, Inc. Chapter 16 17 The Advantages of Trade ?Assumptions ?Two consumers (countries) ?Two goods ?Both people know each other’s preferences ?Exchanging goods involves zero transaction costs ?James and Karen have a total of 10 units of food and 6 units of clothing 169。2020 Pearson Education, Inc. Chapter 16 15 Efficiency in Exchange ?We showed before that petitive markets are efficient because consumer and producer surpluses are maximized ?We can study this in more detail by examining an exchange economy ?Market in which two or more consumers trade two goods among themselves ?Same for two countries 169。2020 Pearson Education, Inc. Chapter 16 13 The Interdependence of International Markets ?Expectation was based on partial equilibrium analysis ?Program actually increased the price and production of soybeans in US as well as US exports ?This caused Brazil to have difficulties exporting even after control was removed ?Can show how each market was affected and pare to general equilibrium analysis 169。2020 Pearson Education, Inc. Chapter 16 11 Reaching General Equilibrium ?Must be able to determine the equilibrium price of both movies and DVDs simultaneously ?We must simultaneously find two prices that equate quantity demanded and quantity supplied in all related markets ?The requires finding the solution to four equations: demand and supply for DVDs and movies 169。2020 Pearson Education, Inc. Chapter 16 9 Two Interdependent Markets – Movies and DVDs Price Number of Videos Price Number of Movie Tickets DM SM $ QM $ Q’M S*M The increase in the price of videos increases the demand for movies. D’V DV SV QV $ Q’V $ General Equilibrium Analysis: The Feedback effects continue. D*M $ Q*M Q”M $ D’M $ Q*V D*V 169。2020 Pearson Education, Inc. Chapter 16 7 Two Interdependent Markets – Moving to General Equilibrium ?Scenario ?Equilibrium price of movies is $ ?Equilibrium price of DVD rentals is $ ?Government places a $ tax on each movie ticket ?Need to look at effect of tax on ? Market for DVDs ? Feedback effects in movie market 169。2020 Pearson Education, Inc. Chapter 16 5 General Equilibrium Analysis ?To study how markets interrelate, we can use general equilibrium analysis ?Simultaneous determination of the prices and quantities in all relevant markets, taking into account feedback effects ?The feedback effect is the price or quantity adjustment in one market caused by price and quantity adjustments in related markets 169。2020 Pearson Education, Inc. Chapter 16 3 Topics to be Discussed ?The Gains from Free Trade ?An Overview: The Efficiency of Competitive Markets ?Why Markets Fail 169。Chapter 16 General Equilibrium and Economic Efficiency 169。2020 Pearson Education, Inc. Chapter 16 2 Topics to be Discussed ?General Equilibrium Analysis ?Efficiency in Exchange ?Equity and Efficiency ?Efficiency in Production 169。2020 Pearson Education, Inc. Chapter 16 4 General Equilibrium Analysis ?Up to this point, we have been focused on partial equilibrium analysis ?Activity in one market has little or no effect on other markets ?Market interrelationships can be important ?Complements and substitutes ?Increase in firms’ input demand can cause market price of the input and product to rise 169。2020 Pearson Education, Inc. Chapter 16 6 Two Interdependent Markets – Moving to General Equilibrium ?Scenario ?The petitive markets of: ? DVD rentals ? Movie theater tickets ?These goods are substitutes ?Changing prices in one market are likely to affect the other market 169。2020 Pearson Education, Inc. 8 Two Interdependent Markets – Movies and DVDs DV DM Price Number of Videos Price Number of Movie Tickets SM SV $ QM QV $ $ Q’M S*M $1 tax on each movie ticket causes supply to fall D’V Q’V $ General Equilibrium Analysis: Increase in movie ticket prices increases demand for videos. 169。2020 Pearson Education, Inc. Chapter 16 10 Two Interdependent Markets – Movies and DVDs ?Observation ?Without considering the feedback effect with general equilibrium, the impact of the tax would have been underestimated ?This is an important consideration for policy makers ?You can check for yourself that in the market for plements, the tax would be overestimated 169。2020 Pearson Education, Inc. Chapter 16 12 The Interdependence of International Markets ?Brazil and the United States pete in the world soybean market, so one market can affect the other ?Brazil limited exports of soybeans in the late 1960’s and early 1970’s, causing price in Brazil to fall ?Eventually the export controls were to be removed, and Brazilian exports were expected to increase 169。2020 Pearson Education, Inc. 14 Soybean Exports – Brazil and US 169。2020 Pearson Education, Inc. Chapter 16 16 Efficiency in Exchange ?An efficient allocation of goods is one where no one can be made better off without making someone else worse off ? Pareto efficiency ?Voluntary trade between two parties is mutually beneficial and increases economic efficiency 169。2020 Pearson Education, Inc. Chapter 16 18 The Advantage of Trade Individual Initial Allocation Trade Final Allocation James 7F, 1C 1F, +1C 6F, 2C Karen 3F, 5C +1F, 1C 4F, 4C ?To determine if they are better off, we need to know the preferences for food and clothing 169。 ?He will give up 18