Applied General Equilibrium Theory, theoretical part文档.ppt

Applied general equilibrium models:Theoretical part M.A. Keyzer and C.F.A. van Wesenbeeck Overview of course Introduction (Chapter 1,2, (3)) Applied general equilibrium: formats: (Chapter 3) Taxes, tariffs and quota: (Chapter 5) Dynamics: (Chapter 8) Externalities: (Chapter 9) * Study load and prerequisites The workload of this course is 2 credits (80 hrs) 10 hrs attending lectures 35 hrs preparing for lectures 35 hrs preparing for the exam Prerequisites Knowledge of microeconomics at the level of the core course microeconomics is assumed. * Lecture 1: Introduction Competitive equilibrium Negishi theorem Production Reforms Represent migration Mathematical “work horses” Literature: chapters: 1, 2 and first part of 3 Sheets available at www.sow.vu.nl/downloadables.htm * Aim of lecture 1 Highlighting the normative relevance of the competitive equilibrium model Showing the relation between competitive equilibrium and welfare optimality * Competitive equilibrium for an exchange economy Competitive equilibrium for an exchange economy: consumers are indexed commodities are indexed ? consumers have utility functions (utility functions are concave increasing) where is consumption vector with elements ? for given commodity endowments determine the market clearing prices * Competitive equilibrium (continued) Formally, solves consumer problem: for given income The market clearing condition is: and solves for equilibrium prices . * Negishi theorem This competitive equilibrium can be represented (in Negishi format) as a welfare program with welfare weights adjusted to meet individual budgets. Both representations are equivalent! * Negishi theorem (continued) Competitive equilibrium in Negishi format: (a) Welfare program where is Lagrange multiplier. (b) Adjust welfare weights so as to satisfy budgets for every i. * Negishi theorem (continued) Check equivalence between both representations: Wel