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microeconomic theory ch12

microeconomic theory ch12

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Published by hasan ali

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Published by: hasan ali on Oct 10, 2008
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10/17/2012

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1
Chapter 12
GENERAL EQUILIBRIUM ANDWELFARE
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
 
2
Perfectly CompetitivePrice System
We will assume that all markets areperfectly competitive
 –there is some large number of homogeneousgoods in the economy
both consumption goods and factors of production
 –each good has an equilibrium price –there are no transaction or transportationcosts –individuals and firms have perfectinformation
 
3
Law of One Price
A homogeneous good trades at thesame price no matter who buys it or who sells it
 –if one good traded at two different prices,demanders would rush to buy the goodwhere it was cheaper and firms would try tosell their output where the price was higher 
these actions would tend to equalize the priceof the good

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