6 02 BEHAVIOR AL ECONOMICS (Ch.

31)

2 Ma n . weeks' measl for her family, wh il e Fred sh ops each

ry plans the e t ir e .· i e c
�y. ch s e l y o ro d c e more v a eu d rn e tsa?. , hiVa t s t h is ffe t
d Whi i lik t p u

compan y an
. s director for a medium-size
��
You are t he human resource
3 . '
em
.
e ow many mutu al f un ds to offe r in your . ?pl ye o es
are tr. y in gI to d e c1'd ldh e s.
Wou it be better to of£er. 10 choices or 50 ch01c
pe ns ion p an ·

4
. W a t i s t e pro b a b 1 t,1
h
in a row w e n s
hh to se d? •
T Y that a fa r
i co in will co me u ph e

ne
s t
ad hr e e
.
time s

u
CHA PTER 32
5 John decides that he will . save $5 this wee an xt we ek. B t
k d $10 u
ha s t e t erm sed
\�hen next we ek arrive ,s nh e de�s des
i to sav o l $ 8. W t i h
n t � . y
t o describe t h i s sort of i co ns i te behav1 �01

EXCHANGE

Up until now we have generally con sidered e m ark et for a s in gle good n
h
t i
isolation. We have viewed the dem and and supply functi ns f or a good as
oe
depending on its price alone, disre g ard i g t e p ces ds B
n h ri o oth r goo . u t in
f

general the prices of other good will affe ct people's d mands and supp i s
s e le
for a particular good. Certainly the pri c e s ofsu b titu t es and complem
s e nt
for a good will influence the demand for i t, and, more subtly, the pric ss
of goods that people sell wil affect th e am nt of incom e they have ane
ou
l

th ereby influence how much of o the r goods th y w ill be abl e t o u . d

e of th b y
other p i ces n
Up until now we have been i gnoring the
e ect
ff
es e r
the market equilibrium. When we dis c u s sed he equ i libru i m conditions o
t h prob in a
particu ar market,, we only looked at part of e
l l m : how demand n
supply were affected by the price of the art ict ul oed were examinia d.
p
This is called partial eq uilibr ium analrsis.
ar
go w e ng
In this chapter we will begin ou r studyof ge n e ral equilibrium ana l i :
how demand and supply conditions interac in severa l m k ts to deter ysns
t t thi s is ara e mi e
theprices of many g oods. As you might suspe compl ex pro b
c , lem,
an d we will have to adopt sever al simp lificatio ns in or d er to deal wi it .
th
First, we will limit our discussion t o the b avior ofc m petitive ma rke ,
h
e
o
t ts
so h ta each
t c no sume ror producer will ake p rces as gi n and opt miz
i
i
ve
e