ECON 313 Chapter Notes - Chapter 4: Mertens-Stable Equilibrium, Pareto Efficiency, Mechanical Equilibrium
3 May 2016
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Binding constraint: the limiting factor that if relaxed would be item that accelerates growth/other target outcome. Economic agent: actor firm/worker/consumer/g"vt official that chooses actions to maximize an objective. Newer theories of econ d"vt emphasized complementarities b/w several conditions necessary for d"vt. Investments must be undertaken by many agents for results to be profitable for any individual agent. Complementarities: action taken by one firm/worker/organizer increases incentives for other agents to take similar actions. Coordination failure: where inability of agents to coordinate behaviour leads to outcome (eq) worse off than in an alternative situation that"s also an equilibrium. Can happen even when fully informed eg diff expectations, waiting for someone else to make. Firms won"t enter market or locate in area if workers don"t have skills the firms need, but workers won"t acquire skills if no firms to employ them. Can only specialize if we can trade t other goods/services we need specialization needed for high productivity.
