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19 EXCHANGE Partial equilibrium analysis: how demand and supply were affected by the price of the particular good we were examining. (局部均衡) General equilibrium analysis: how demand and supply conditions interact in several markets to determine the prices of many goods. (一般均衡) The structure of the model: Competitive market. Two goods and two consumers. In two stages. The Edgeworth Box Two people: A and B. Two goods: 1 and 2. A’s consumption bundle: XA= (xA1, xA2) B’s consumption bundle: XB = (xB1, xB2). An allocation: (XA, XB). The initial endowment allocation, (wA1, wA2) and (wB1, w B 2). A feasible allocation (XA, XB): xA1 + xB1 = wA1 + wB1 xA2 + xB2 = wA2 + wB2 Make a rectangle: Height: w2A + w2B Width: w1A + w1B wB1 OB wA2 W wB2 OA wA1 Depict A’s and B’s indifference curves ----Edgeworth box(埃奇沃思方框图) Trade Any trade from endowment can be in the box. xB1 OB M xA2 xB2 W OA xA1 There are some trades make A and B both better off: M. Equilibrium: the state no body would like change. MRSA12 = MRSB12 ----Pareto efficient allocation. OB OA Contract curve(契约曲线): the set of all Pareto efficient points. Market Trade Market price: (p1, p2) Consumer A’s problem: Max u(xA1, xA2 ) s. t. p1xA1 + p2xA2 ( p1wA1 + p2wA2 The conditions for his best choice MRSA12 = – p1xA1 + p2xA2 = p1wA1 + p2wA2 The solution: [xA1(p1, p2), xA2(p1, p2)] The net demand or excess demand (超额需求)of A: eA1 = xA1 – wA1 eA2 = xA2 – wA2 Consumer B’s problem: Max u(xB1, xB2 ) s. t. p1xB1 + p2xB2 ( p1wB1 + p2wB2 the conditions for his best choice MRSB12 = - p1xB1 + p2xB2 = p1wB1 + p2wB2 The net deman