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The General Equilibrium Theorem-part 3:

Constructing the three conditions for economic efficiency in a 2x2x2 economy model Following the explanation in part 2, where consumers could come together and trade, in this clip we introduce prices in the market. And we show that trading with market prices in our edgeworth box improves the satisfaction of both consumers (not just one of them, while the other one remains at the same level of utility, as was the case with bargaining). Both consumers move to a higher Indifference Curve., where trading with market prices moves consumers from, say, a point like A to a point like C. We end up with the 1st condition for efficiency in our 2x2x2 economy.
Length: 05:36


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