10

Question 1

Topics of the 10th slide:

Answer 1

General Equilibrium Model and Examples
Determination of Equilibrium Prices.
Walras’ Law and why it holds!
Pareto Efficiency
The 1st and 2nd Welfare Theorem
Proof of the 1st Welfare Theorem

Question 2

Partial vs. General Equilibrium
What’s the difference?

Answer 2

-Partial Equilibrium: Analyzes one market in isolation (e.g., just the market for coffee).
Exogenous (given from outside): Prices of other goods, income, etc.
Example: Studying how a tax on coffee affects coffee demand, ignoring its impact on tea or wages.
-General Equilibrium (GE): Studies all markets together (coffee, tea, labor, etc.).
Endogenous (determined within the model): All prices, incomes, and quantities.
Why? Because real-world markets are interconnected!

Question 3

How does the general equilibrium model tries to endogenize many aspects that are exogenous in the partial equilibrium model?

Answer 3

• All prices are endogenous. For each good, supply equals demand.
• Consumers’ incomes are endogenous. Consumers earn income by
  selling their labor time, their shares of firm profits, etc.

What typically remains exogenously given?

-Consumers’ preferences are exogenous.
-Technology of firms is exogenous.

Because many goods, consumers, and producers must be considered
simultaneously, general equilibrium models are often relatively complex.

Question 4

Exogenous vs. Endogenous

Answer 4

“Bir şeyin exogenous olması, gerçekte asla değişmez demek değil — sadece bu modelde sabit alındı demektir.”

Endogenous = modelin çözmeye çalıştığı bilinmeyen.

Exogenous = modele dışarıdan verilen, sabit alınan bilgi.