Microeconomics Exchange And Production !
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- a) Agents and goods: The concept of good considered here is very broad. Goods can be distinguished by time, location, and state of world. Services, such as labor services, are taken to be just another kind of good. There is assumed to be a market for each good, in which the price of that good is determined
We can also illustrate the agents' indifference curves in this box. There will be two sets of indifference curves, one set for each of the agents. All of the information contained in a two-person, two-good pure exchange economy can in this way be represented in a convenient graphical form.
- Walrasian equilibrium: We typically define a Walrasian equilibrium to be a pair (p*,x*),
such that 
That is, p* is a Walrasian equilibrium if there is no good for which there is positive excess demand.
- Graphical analysis: Walrasian equilibrium can be examined geometrically by use of the Edge worth box. Given any price vector, we can determine the budget line of each agent and use the indifference curves to find the demanded bundles of each agent.
- Firm behavior: If there are k goods, then a net output vector for firm j is a k-vector yj, and the set of feasible net output vectors-the production possibilities set-for firm j is yj.
- Aggregate profit maximization: An aggregate production plan, y, maximizes aggregate profit, if and only if each firm's production plan yj maximizes its individual profit.
- Labor supply: By introducing labor into the model, we introduce a new possibility: consumers can supply different amounts of labor depending on the wage rates.
- Distribution of profits: We summarize ownership relation by a set of numbers (Tij), where Tij represents consumer i's share of the profits of firm j. For any firm j we require that
 = 1, so that it is completely owned by individual consumers. The total profit income received by consumer i is just the sum of the profits he receives from each of the firms:  pYj (p).
- Aggregate demand: Adding together all of the consumers' demand functions gives the aggregate consumer demand function X(p) =
- Welfare analysis in a productive economy: It should come as no surprise that the analysis of welfare maximization in a productive economy precedes in much the same way as in the pure exchange case. The only real issue is how to describe the feasible set of allocations in the case of production.
- Graphical treatment: There is an analog of the Edge worth box that is very helpful in understanding production and general equilibrium.
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