(Created 2009-08-11.)

MICROECONOMICS - GENERAL EQUILIBRIUM THEORY | TEK137 |

**Aim**

The aim of the course is to give deeper insights into advanced general equilibrum models.

*Knowledge and understanding*

For a passing grade the student must

· understand and account of the relationship between equilibrium and efficient use of resources,

· understand and account for general equilibrium models with incomplete markets and with uncertainty,

· have knowledge of the relationship between general equilibrium theory, welfare theory and the elementary social choice theory.

*Skills and abilities*

For a passing grade the student must

· estimate the consequences for general equilibrium when the basic assumptions for the theory are not satisfied, e.g., minimum wages and unemployment or tax edges and loss of welfare.

*Judgement and approach*

For a passing grade the student must

**Contents**

The course starts with an roduction of a general equilibrium model with private ownership. Then, conditions for existence, uniqueness and stability of equilibrium are analyzed. The relationship between Pareto efficiency and general equilibrium is demonstrated. The cooperative concept the core is introduced and the relationship to general equilibrium is established. The interpretation of the general equilibrium model in terms of uncertainty is discussed and the consequences of incomplete markets as trade with assets instead of direct trade with goods are analyzed. The problem of implementation of efficiency in the general equilibrium model is discussed and analyzed in the social choice theory.

**Literature**

Mas-Colell A, Whinston M D and Green J R: Microeconomic Theory, Oxford University Press, 1995.

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