Economics 2150A/B Lecture Notes - Pareto Efficiency, Budget Constraint, Tangent

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Kristin Denniston

Document Summary

Homework 5: will be posted thursday or friday, covers chapter 16 & 17. Is the allocation of goods and inputs pareto efficient (economically efficient): fundamental theorem: a general competitive equilibrium is pareto efficient, which requires, exchange efficiency, there is no way that either side can trade to increase their utility, mrsxy. Joe: mrtxy = mrsxy, does the level of x and y produced match the level of x and y, exchange efficiency. Bill and joe are maximizing utility subject to a budget constraint where pxx + If the marginal utility for x was higher than for good y, it would imply that bill (the consumer) should consume more x and less y. Py (because consumers are utility: production efficiency. There is no way to reallocate l and k inputs across industries x & y in such a. Lk way that both industries can produce more output.