ECON 101 Lecture Notes - Lecture 8: Edgeworth Box, Nash Equilibrium, Game Theory
6 Dec 2017
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Document Summary
Government intervention cannot make everyone better off. External effect one decision could affect the other. Generally: self interest + voluntary trade lead to bad allocation. Wft states government cannot make everyone better off, but it does not apply when there are external effect. Subsidies instead of gifts resource constraints: time spend on leisure and education. Economists predict choices of economic agents by using economic models. More of everything is better, transitivity, diminishing mrs outward ics represent better combinations indifference curves cannot cross. Ic are convex: budget constraint: p1x1 +p2x2 = m, slope measures the opportunity cost of increasing consumption of x1 f. g, optimum, ic just touch the bc opportunity cost. Feasible combination (on bc, most preferred combination, most outward of ic opportunity cost (slope of bc) = marginal rate of substitutions: model of interactions: model of exchange a. b. c. 2 types of agents, 2 goods (endowments) trade, allocation, no savings optimal choice.
