General Equilibrium Foundation of Partial Equilibrium Analysis
This book addresses the gaps in undergraduate teaching of partial equilibrium analysis, providing a general equilibrium viewpoint to illustrate the assumptions underlying partial equilibrium welfare analysis. It remains unexplained, at least at the level
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Takashi Hayashi
General Equilibrium Foundation of Partial Equilibrium Analysis
Takashi Hayashi
General Equilibrium Foundation of Partial Equilibrium Analysis
Takashi Hayashi Adam Smith Business School University of Glasgow Glasgow UK
ISBN 978-3-319-56695-5 ISBN 978-3-319-56696-2 DOI 10.1007/978-3-319-56696-2
(eBook)
Library of Congress Control Number: 2017940593 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Image credit: Design Pics/Chris Knorr Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Preface
Introductory courses of microeconomics normally start with partial equilibrium analysis, consumer surplus analysis in particular. In order not to torture students, consumer surplus for a given individual is quite often introduced simply as a cardinal utility that is measured in income, which is taken to be interpersonally comparable. Then, we teach efficient allocation of resources as maximization of social surplus, which is the sum of consumer surplus across individuals minus social cost of production. Then, we move on to intermediate or advanced/intermediate courses, in which we introduce the concepts of indifference curves and ordinal utility defined over multiple goods, Edgeworth box, Pareto efficiency, contract curve (or Pareto set), and general equilibrium with simultaneous determination of price and income, as if nothing has been taught before that. In order to teach imperfect competition or incomplete information then, which is difficult to teach in the general equilibrium framework not just because of pedagogical hardness but also because of analytical limitations, we come back to the partial
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