【正文】 9。2020 Pearson Education, Inc. Chapter 16 20 The Advantage of Trade ?There is room for trade ?James values clothing more than Karen ?Karen values food more than James ?Karen is willing to give up 3 units of clothing to get 1 unit of food, but James is willing to take only 189。 and 3 units of clothing 169。2020 Pearson Education, Inc. Chapter 16 22 The Advantage of Trade ?From this analysis we obtain an important result: An allocation of goods is efficient only if the goods are distributed so that the marginal rate of substitution between any pair of goods is the same for all consumers 169。2020 Pearson Education, Inc. Chapter 16 24 The Edgeworth Box Diagram ?Food is measured across the horizontal axis ?Clothing is measured on the vertical axis ?Length of box is the total amount of food – 10 units ?Height of box is the total amount of clothing – 6 units 169。2020 Pearson Education, Inc. 26 Exchange in an Edgeworth Box 10F 0K 0J 6C 10F 6C James’ Clothing Karen’s Clothing James’ Food Karen’s Food 1C 5C 3F 7F A The initial allocation before trade is A: James has 7F and 1C amp。2020 Pearson Education, Inc. Chapter 16 27 Exchange in an Edgeworth Box James’ Food Karen’s Food 10F 0K 0J 6C 10F 6C James’ Clothing Karen’s Clothing 1C 5C 3F 7F A The allocation after trade is B: James has 6F and 2C amp。2020 Pearson Education, Inc. Chapter 16 28 Efficient Allocations ?A trade from A to B makes both Karen and James better off ?Is it efficient? ?If James’ and Karen’s MRS are the same at B, the allocation is efficient ?This depends on the shape of their indifference curves 169。2020 Pearson Education, Inc. Chapter 16 30 Efficient Allocations ?The shaded area between these two indifference curves represents all the possible allocations of food and clothing that would make both James and Karen better off than A ?Describes all mutually beneficial trades 169。2020 Pearson Education, Inc. Chapter 16 32 Efficient Allocations ?How do these parties reach an efficient allocation? ?When there is no more room for trade ?When their MRSs are equal ?They will keep trading, reaching higher indifference curves, until they can no longer do so and still make each better off ?This is when indifference curves are tangent – they have the same slope and same MRS 169。2020 Pearson Education, Inc. Chapter 16 34 Efficiency in Exchange Karen’s Clothing Karen’s Food James’s Clothing James’s Food 10F 0K 0J 6C 10F 6C UK1 UJ1 A Point B is on higher IC but is not efficient UJ2 UK2 B At point C, MRSs are equal and allocation is efficient UK3 C D is also a possible efficient allocation depending on bargaining UJ3 D 169。2020 Pearson Education, Inc. Chapter 16 36 Efficiency in Exchange ?The Contract Curve ?To find all possible efficient allocations of food and clothing between Karen and James, we would look for all points of tangency between each of their indifference curves ?The contract curve shows all the efficient allocations of goods between two consumers, or of two inputs between two production functions 169。 G are Pareto efficient. 169。2020 Pearson Education, Inc. Chapter 16 39 Efficiency in Exchange ? Application: The policy implication of Pareto efficiency when removing import quotas: 1. Remove quotas ? US consumers gain ? Some US workers lose 2. Removal of quotas and subsidies to the workers 169。2020 Pearson Education, Inc. Chapter 16 41 Efficiency in Exchange ?Consumer Equilibrium in a Competitive Market ?Competitive markets have many actual or potential buyers and sellers, so if people do not like the terms of an exchange, they can look for another seller who offers better terms 169。2020 Pearson Education, Inc. Chapter 16 43 Consumer Equilibrium in a Competitive Market ?We can show opportunities for trade for many consumers ?When prices of food and clothing are equal, we can show the price line, PP’ with a slope of –1 ? Shows all possible allocations that exchange can achieve ?James buys 2 clothing for 2 food: A to C ?Karen buys 2 food for 2 clothing: A to C ?Both increase satisfaction 169。2020 Pearson Education, Inc. Chapter 16 45 Consumer Equilibrium in a Competitive Market ?The amount of clothing that Karen wanted to sell is equal to the amount of clothing that James wanted to buy ?An equilibrium is a set of prices at which the quantity demanded equals the quantity supplied in every market ?Also called petitive equilibrium 169。 ?Karen is happy to sell clothing at that price but has no one to sell to ?Market is in disequilibrium 169。2020 Pearson Education, Inc. Chapter 16 48 Economic Efficiency of Competitive Markets ?As shown before, we can see that the allocation in a petitive equilibrium is economically efficient ?The efficient point must occur where the two indifference curves are tangent ?If not, one of the consumers can increase their utility and be better off 169。2020 Pearson Education, Inc. Chapter 16 50 Consumer Equilibrium in a Competitive Market ?First Theorem of Welfare Economics ?If everyone trades in a petitive marketplace, all mutually beneficial trades will be pleted and the resulting equilibrium allocation of resources will be economically efficient ?Welfare economics involves the normative evaluation of markets and economic policy 169。2020 Pearson Education, Inc. Chapter 16 52 Consumer Equilibrium in a Competitive Market ?Difficult for efficient allocation with many consumers and producers unless all markets are perfectly petitive ?Efficient outes can also be achieved by centralized system ?Competitive oute preferred since consumers and producers can better assess their preferences and supplies 169。2020 Pearson Education, Inc. C