buletin ştiin ific - Facultatea de Stiinte Economice - Universitatea din ...

The economic equilibriumcost and preference, of factor productivity and are really different aspects of one vast,simultaneous, interdependent process (7).Like an invisible web, the many input and output markets are connected in aninterdependent system we call a general equilibrium. The outer loops show the demands andsupplies of goods and factors (Fig.5). Thus we see a logical structure behind the millions ofmarkets determining prices and outputs:• Households with supplies of factors and preferences for products interact with• Firms that, guided by the desire to maximize profits, transform factors bought fromhouseholds into products sold to households. The logical structure of a general –equilibrium system complete.Fig. 5. Partials Equilibriums ant General EquilibriumConsumer demand(U m x/U m y = P x /P y )Product marketsPSProducts supply(C m = R m )DQConsumer equilibriumHOUSEHOLDSRelative utilities ofdifferent goodsMoneyProducer equilibriumBUSINESSProduction functionslinking inputs and outputsPFactors marketsSSupply of factors(labor, capital, land)DQDerived demand(proportionality ofmarginal revenueproducts)Conclusion: In competitive general equilibrium, with utility – maximizing consumers andprofit – maximizing firms:• the rations of marginal utilities of goods for all consumers are equal to the relativeprices of those goods;• the rations of marginal costs of goods produced by firms are equal to the relativeprices of those goods;• the relative marginal product of all inputs are equal for all firms and all goods andare equal to those input’s relative prices.A perfectly competitive, general – equilibrium market system will display allocativeefficiency. Two different types of market failure spoil assumed in the discussion of efficientmarkets: imperfect competition and externalities (arise when all the side effect of production orconsummation is not include in market price).39