Chapter7
The Firm and the Labor Market
What is the difference between the short run and long run labor Supply curve?
Show the difference graphically? (Firms chapter 7 Page 228+229)
A household`s labor supply curve shows the amount
of labor (Hours of labor) supplied by a household to the
labor market at each level of the wages rate.
The elasticity of a household labor supply response
to a wage rise in the short-run may be smaller than
the long-run elasticity. If the wage that can be earned
by household members rises from W1 to W2 then in
additional to the short-run increase in market work
from L1 to L2, the household may recognize its production
of Z-good to release further time for market work.
Furthermore, in the long-run household members may
response to higherpotential income stream by retaining in order to enter the labor
markets where earning are rising. In the long-run, labor supply may therefore
increase further to L3.
Question 10:
Show graphically the firm's short-run and long-run
Demand for labor? (Firms
chapter 7 Page 217)
The above diagram shows the relationship between the short-run and long-run labor
demand curves. When the wages rate falls from W1 t W2 labor demand in long-run
equilibrium increases from L1 to L2. At the same time the firm changes the amount
of capital services it uses. The increase in labor used with each unit of capital
services will normally increase the marginal product of each unit of the firm capital
services.
Chapter 9
TECHNOLOGICAL CHANGE
What made the Industrial Revolution is the diffusion of machines throughout the economy.
Two main characteristics: ‫ما الذي جعل الثوره الصناعيه تنتشر من خالل االقتصاد‬
1)
Innovations: sequence of challenge and response, placing heavy strain on the factors of
production. Innovations create bottlenecks and new opportunities. Innovative efforts
overcome the bottlenecks and exploiting the new opportunities.
‫ جهود االبتكار‬. ‫ االبتكار خلق عوائق وفرص جديده‬. ‫ سلسلة من التحديات واالستجابات تضع حمالّ ثقيالّ على عوامل االنتاج‬: ‫ االبتكار‬/1
.‫تجاوزت العوائق و استغلت الفرص‬
2)
None of the innovations are perfect. There is the trial and error of creation; there are
adjustments before they work.
. ‫ اليوجد ابتكار كامل‬/2
The technology advance then crosses industry boundaries. It improves the whole economy. The
steam engines were an essential ingredient of the whole Industrial Revolution.
Examples of innovation in one economics activity that have repercussions on the whole economy
and society (to be discussed in the class).
Examples:
Light bulb, Microprocessor, Chemical, Metal, iron etc. There was an apparent need for a machine
that could solve the problem efficiently and economically. The real step happened with the steam
engines by Wat and Boulton.
There was an apparent need for a machine that could solve the problem in a more efficient and less
expensive way.
2. - Technological Change in the Industrial Revolution
2.1 - unbound Prometheus
3. The production function, technological change and economic growth
3.1 The Neoclassical Approach: The Production Function
Discuss the neoclassical approach to measure the contribution of technical change to economic
growth.
The production function is used by Solow. He explored the determinants of economic growth in the
USA. He measured the relative importance of capital accumulation and technological change to
economic growth using ‘growth accounting’ method. (More is explained in p287).
3.2 process innovation and the production function
How is technological change represented in neoclassical theory?
The available technology to a firm can be represented by a production function.
Technological change is a change in production function.
This framework two ways can be defined:
1) Product Innovation: The Introductions of a new good or service.
2) Process Innovation: The introduction of a new way of producing an existing good or service.
Process innovation allows existing goods to be produced with fewer inputs.
Product innovation increases the number of goods available in the economy.
Techniques of production in the neoclassical framework can be defined as:More or less capital –intensive the technique. The higher is the K/L ratio, the more capital intensive
techniques. So , a labour –saving innovation will imply that the firm will choose a more capital – intensive
technique for given factor price-ratio after the innovation , conversely a capital-saving innovation will lead
to choice of a more labor-intensive techniques
3.3 Solow's Analysis of Economic Growth
Economists have focused on process innovations. Why?
What does an isoquant represents?
It connects the different combinations of capital and labor to produce a given quantity of a good.
The shape of isoquants is convex.
Process innovation can be represented on such an isoquant map as a shift of the isoquants towards
the origin. Is the process Innovation a capital- saving or labour –saving?
There are three types of research activity have been seen as stage of a linear innovation process:
1- Basic Research.
2- Applies Research.
3- Development Research.
Explain the difference between them.
What is the difference between Invention and Innovation?
Invention involves discovery and creation, and denotes the generation of a new idea for a product or a
process of production.
Innovation is the introduction of a new product or a new process of production into the economy, usually
on to the market.
The Technology-push model
The Demand-pull model
Explain these two model..
What is the main problem with these two models?
Q 1 - What is the difference between Invention and Innovation? (Firms chapter 9)
Invention Involves discovery and creation, and denotes the generation of a new idea for a
product or a process of production.
Innovation Is the introduction of new product or a new process of production into the
economy, usually on the market.
Q 2 - How is technological change represented in neoclassical theory? (Firms chapter 9 page 288)
What is the difference between product and process innovation? Which one do Economists
focus on?
The available technology to a firm can be represented by a production function. Technological
change is a change in production function, this framework two ways can be defined:
1.
Product Innovation: The Introductions of a new good or service, Product
innovation increases the number of goods available in the economy.
Q3 - Briefly, explain the liberal theory of justice? (Markets chapter 9 Page 252+253)



The individual assumption are rational and self-interest
They pay much attention to liberty or the freedom of the individual
The freedom of one private individual can be threatened by the actions of another due to
the scarce and the externalities.
Economic agents are entitled to hold their initial bundle of goods, any distribution of
those goods which comes about through voluntary exchange will leave agents with goods
that they are entitled to hold.
Q4 - What is the meant by The Demand-pull model? (Firms chapter 9 Page 303306)


Inventions are response to wants (need create demand), this is Schmookler's conclusion
that firms introduce innovation for economic gains, they tend to put their innovative
investment into areas where demand is growing so that they can reap greater returns.
An increase in demand often followed from a reduction in costs due to process
innovation.
The main problem with both the technology-push and demand-pull models of innovation
is that the linear structure neglects important aspects of innovation process
Q5 - Explain the Technology-push model? (Firms chapter 9 Page 303306)
The technology-push model of innovation has been highly influential in economic policy.
For ex. in government support for public sector scientific research and private R&D are
based on this model. The way to increase the rate of innovation (and therefore the
economic efficiency) is to increase the pool of scientific knowledge.
Q6 - What are the main limitations of the production process (technology push?)
Linear model ? (Firms chapter 9 Page 303306)
 The market demand does not significantly shape the rate
or the direction of technological change.
 The liner structure neglect important aspects of innovation process.
‫‪CHAPTER 11‬‬
‫مقدمة ‪:‬‬
‫يرى البعض أن التطور الصناعي مرتبط باالبداع ‪ ,‬لهذا تحاول بعض السياسات دعم اإلبداع الصناعي للحصول على مردود‬
‫اقتصادي مناسب ‪.‬‬
‫ماهي السياسات الناجحة في دعم االبداع الصناعي ؟‬
‫في العقود األربعة االخيرة اصبحت العالقة بين العلم والتكنولوجيا واالقتصاد مسلمة غير قابلة للنقاش وتدرجت في‬
‫التخطيط من المستوى القريب الي المستوى البعيد ‪ .‬ولفهم هذه التغييرات فانة من الضروري دراسة االطار النظري لصنع‬
‫القرارات ‪ ,‬وهنا يجب المقارنة بين النظرية القديمة في صنع القرار والنظرية الحديثة‪(neoclassical approach).‬‬
‫وباختصار فان العلم والتكنولوجيا يجب ان تهتم بعملية االبداع ‪ ,‬وليس في ابداع معين‪ .‬هذا الجدال قد ينطبق على الدول‬
‫الصغيره التي التستطيع مجاراة الدول الصناعية‪ .‬وتعد المهمة الرئيسية لصناع القرار في ايجاد بيئة مناسبة لالستثمار في‬
‫مجال العلم والتكنولوجيا‪ .‬وفي رأي ان العلم والتكنولوجيا شيئين مختلفين يعتمد كل منهما على اآلخر *‪ .‬التستطيع اي‬
‫شركة ان تبدع بعيدا ً عن التكنولوجيا‪.‬‬
‫وسأطور وجهة نظري على أربع خطوات‪:‬‬
‫‪ -1‬العلم والتكنولوجيا يجب ان تبنى على أساس المعرفه‪.‬‬
‫‪ -2‬تعريف الفوارق‪.‬‬
‫‪ -3‬معرفة الطريقة التقليدية لسياسة التكنولوجيا‪.‬‬
‫‪ -4‬المقارنة مع الطريقة التطويرية‪.‬‬
‫*دراسة مثال برنامج المملكة المتحدة كمثال لخلق سياسة تكنولوجية‪.‬‬
‫‪THE DISTINCTIVENESS OF TECHNOLOGY‬‬
‫يختلف رأي العامة من الناس في تفسير اهمية العلم والتكنولوجيا حيث يرى قسم منهم ان التطور العلمي هو عبارة عن استهالك ثقافي‬
‫‪.‬‬
‫ويرى آخرون انه عبارة عن تطور يعود بالنفع على االقتصاد في تحسن المعيشة وصنع الثروة‪.‬‬
‫ويعتبر " فان افر " ‪ vannevar‬أول من قام بوضع مثل هذه النظرية‪.‬‬
‫ويؤكد هنا ان المعرفة التحصل اال عن طريق البحث العلمي‪.‬‬
‫ويقترح " وايز " ‪ wise‬ان هذه هي العبارة األصلية في عملية االنتاج الحديث‪.‬‬
‫س ‪ :‬ماهي الحدود الرئيسية في عملية االنتاج ؟‬
‫النقطة األكثر أهمية هي ان خط االنتاج يغطي فقط اجزاء صغيرة من االعمال المتداخلة في عملية االبداع‪.‬‬
‫"سكاموكر " ‪ schmookler‬على سبيل المثال وضح اهمية العوامل االقتصادية في عملية االبداع كذلك تعتمد على كثير من‬
‫االنشطة غير العلمية او التكنولوجية‪.‬‬
‫مع امر اخر باالهتمام بمكانة العلم والتكنولوجيا‪.‬‬
‫س‪ :‬بناء على تاريخ المحرك البخاري في شابتر ‪ : 9‬عرف الفروق الرئيسية بين العلم والتكنولوجيا ؟ ص ‪361‬‬
‫بعبارات واسعه ‪ ,‬العلم هو اكاديمية طبيعية ونتاجه يضاف الي الناتج المعرفي الذي يهدف اليه‪.‬‬
‫العلم مفتوح ونتائجة متداخله ‪ ,‬المهمه االساسية له هي أولوية النشر‪.‬‬
‫يعتبر الفيزياء المحضة مثال على هذه السمات ‪ ,‬التكنولوجيا عملية وتطبيق قواعد واليمكن الحكم عليها نظريا ً بل بواسطه استخدامات‬
‫عملية‪.‬‬
‫*العلم مفتوح ‪ ...‬ولكن التكنولوجيا مغلقة‪.‬‬
‫كثير من التطبيقات التكنولوجية تقع في نطاق محدد يمكن الوصول اليه عن طريق التطبيق والمحاولة ‪.‬وليس عن طريق اصدارات‬
‫ادبية ‪.‬‬
‫لهذا يكون كل محور من محاور التكنولوجيا ذو اهمية واختصاص لمطبقينه ‪.‬‬
‫*وظيفة التكنولوجيا الحقائق وتطبيقها ‪ .‬قبل أي فهم علمي ومن امثلة ذلك عجلة الماء والمحرك البخاري‪.‬‬
‫لو كانت التكنولوجيا مختلفة عن العلم اال ان العلم يعتبر المخزن الذي تستقى منه التكنولوجيا ‪.‬‬
‫قد تطلب المعرفة ألهل المعرفة فقط ولكنها مرتبطة بطريقة وثيقة بالتطورات العلمية ‪.‬‬
‫وتوجد طريقة اخرى مشرقة في النظر الي العلم ‪ .‬بحيث انه الدليل الذي يوضح للتكنولوجيا المكان الذي تبحث فيه ‪ ,‬مما ساعد على‬
‫تقليص نفقات البحث‪.‬‬
‫*كثير من التطورات التكنولوجية تبحث عن الخبرة المكتسبة من الحقائق التطبيقية‪.‬‬
‫‪The economics of technology Policy: The traditional approach‬‬
‫ يمكن تعريف التكنولوجيا بعدة طرق على انها المهارة‪ .‬المعرفة ‪ .‬الحقائق ‪ ,‬والسياسة التكنولوجية تركز على هذه العناصر مجتمعه‬‫ سياسة التكنالوجيا تركز على اندماج هذي العناصر‬‫‪( Programs of engineering research, training or the construction of a specific device).‬‬
‫س ‪ :‬انواع الفشل األسواق الالمركزية في تحديد مصادر االبداع ؟‬
‫أنواع فشل األسواق في االبداع‪:‬‬
‫‪ -1‬انها مستخدمة وغير مستهلكة ‪.‬‬
‫‪ -2‬االختالفات الواسعة بين النفقات الشخصية واالجتماعية تضيف نوع آخر من الصعوبة ‪.‬‬
‫‪ -3‬عدم القدرة على تقديرعوائد االبداع التقنية والتجارية ‪.‬‬
‫‪ -4‬صنع القرارات ذات الصلة بالتكنولوجيا تعتبر قرارات ضمنية التستطيع تحديد الوقت بين النظرية والتطبيق ‪.‬‬
‫ نتيجة لهذه االخفاقات المختلفه يغيب السوق المشجع لخلق كفاءه وتبادل تكنالوجيا المعرفه‪.‬‬‫ يقول ( أروو ‪ ( arrow‬ان المشكلة في تأسيس اسواق فعالة في تكنولوجيا المعرفة مركبة من مفارقة المنتج الغريبة ‪ ...‬حيث انك تشتري منتج‬‫معين يجب ان تعرف ماهو نوع المنتج‪.‬‬
‫هناك حقيقة اخرى لفشل االسواق التكنولوجية وهي أن المنتج التكنولوجي تقل قيمته عندما تتسع دائرة انتشاره واستخدامه في المجتمع‪.‬‬
‫هذه االعتبارات تمثل النموذج التنافسي غير المناسب‪.‬‬
‫‪3.2 Limitations of the market failure perspective‬‬
‫حدود مفهوم فشل السوق‪.‬‬
‫باختصار ‪ :‬توجد فروقات بين الحوافز الشخصية واالجتماعية والتي مبدئيا ً تستطيع الحكومة العمل على تصحيحها‪.‬‬
‫بغض النظر عما قد تتعرض له الحكومات في حال فشل اسواق التكنولوجيا فانة من الواضح ان سياسة التكنولوجيا قد تترك كثيرا ً من األمور‬
‫المطلوبة‪.‬‬
‫ ومن الصعوبات الحقيقة ان الطريقة التقليدية تقوم على رؤية الكفاءه لـ بارتيو وهو رؤيه اقتصاديه للمنافسه حيث تكون توازن بنية السوق‬‫مقارنة مع "‪"Pareto-efficient yardstick of perfect completion‬‬
‫وهذه من األسباب التي توضح لماذا تكون آثار السياسة حساسة للمنافسة التي تقوم عليها السوق‪.‬‬
‫‪ -‬قد يثير االبداع الي الفرق بين الشركات في تحديد المعلومات على اي حال فان المعلومات واالبداع ضروريات ‪.‬‬
‫وان االبداع يؤثر في نجاح السوق أو فشله بناء على المعلومات المتوفرة ‪.‬‬
‫المنظور التطويري ‪An Evolutionary Perspective‬‬
‫‬‫‬‫‪-‬‬
‫من الطبيعي ان تميل لعملية التطور وذالك بأن تركز اإلنتاج حول أنشطة أكثر فعالية لتدمير التنوع الذي يدفع المنافسة ويجعل الوضع مائل‬
‫نحو االحتكار‬
‫الشركات تنافس لتحصل على (وضعية االحتكار) وليس لتخصيص الموارد حسب " ‪"Pareto-efficient‬‬
‫االقتصاد التنافسي يشتمل على نوعان (‪) encompasses two kinds of events‬‬
‫(‪ Qualitative Ones )1‬وهو نوعي ويقدم نشاطات جديده‬
‫(‪ Quantitative Ones )2‬وهو كمي و يقصد ان التغير مهم نسبيا ّ لوجود هذي النشاطات‬
‫في وضعية المافسه الحقيقيه جميع االماكن مقتوحه للتحدي وهي تربط بين االبداع والمنافسه وهي تثبت ان العامل االساسي في نمو‬
‫االقتصاد ولذالك سياسة التكنالوجيا اصبحت عنصر اساسي تهدف الى المحافظه على حالة االقتصاد المفتوح ‪.‬‬
‫ومن هذا المنظور نركز على أن سياسة االبتكار تنتقل من تصحيح فشل السـوق الى تشجـيع‬
‫الـ( االحتماليه – الربحيه ) للسلوك التجريبي ‪.‬‬
‫لذالك ينتبه صانعو سياسة التطور الى نقل الكفاءه الى االنتاجيه‬
‫ومن هذا المنطلق ال يسأل صانعوا السياسات عن اي الشركات اوفر حظا في انها تنجح بإيجاد تكنلوجيا متطوره كبيره ‪ .‬بل عليهم االهتمام‬
‫والتركيز على إيجاد مصادر للفرص التكنلوجيه الواعده لكي يبتكروا ‪.‬‬
‫اخيرا تطرق الى نقطه وهي دعم البرامج التكنلوجيه وهي مايميز بعض االعمال الصغيره‬
‫الشركات الكبيره منفتحه على االساله ‪.‬‬
‫فرص االبتكار و قدرة الشركات ‪4.1 Innovation Opportunities and Firm Capabilities:‬‬
‫‪Technology policy is intended to change the innovation behavior of firms so that it should take‬‬
‫‪account of the relationships between expenditure on technology creation and the resulting outputs.‬‬
‫‪This relationship is what we call it the innovation process or the 'innovation opportunities function.‬‬
‫‪This function relates inputs to the innovation process (time and effort) to output and tells us how‬‬
‫‪inputs might be used efficiently.‬‬
‫تميل السياسه التكنالوجيه الي تغير سلوك االبتكار للشركات لذالك يجب ان تاخذ بالحسبان العالقه االنفاق على خلق تكنالوجيا و النتائج لهذا‬
‫االنفاق ‪ .‬وهذه العالقه نسميها عملية االبتكار او ( وظيفة فرص االبتكار ) وهذي الوظيفه تتعلق بمدخالت عملية االبتكار ( الوقت والجهد )‬
‫حتى نصل الى االنتاج وتخبرنا كيف نستخدم مدخالتنا بكفاءه ‪.‬‬
‫‪The important point to recognize is that the innovation curves are drawn for a given level of‬‬
‫‪technological capabilities of the firm that is for the firm's state of knowledge relevant to that‬‬
‫‪technological area. Any improvement in this state of knowledge shifts the function - the map of‬‬
‫‪innovation curves - towards the origin.‬‬
‫النقطه المهمه هي الدراك ان منحنى االبتكار يرسم لكي يعطي مستوى ( قدرة االنتاج للشركه ) ويبين وضع الشركه المعرفي " يعني هل لديها‬
‫معرفه " المرتبط بالتكنلوجيا ‪ .‬أي تطور في حالة المعرفه ينقل دالة منحنى االبتكار الى االمام ( ‪ INN1‬ينتقل الى ‪) INN2‬‬
4.2- A Policy Dichotomy
‫ساسية االنقسام‬
5. Technology foresight:
A route to building infrastructure has been to create new 'bridging institutions' between industry and
academia to facilitate the effective transfer of knowledge and to shape the research agenda. (UK the
Technology Foresight Program)
‫برامج البحوث احدى السبل لبناء بنيه تحتيه هو انشاء جسر اكاديمي بين الصناعه و االكادميات لكي تسهل فعالية نقل المعلومات لكي نصياغ‬
Foresight activities have been defined as: 'a systematic means of assessing those scientific and
technological developments which could have a strong impact on industrial competitiveness, wealth
creation and the quality of life.
‫االستشراف عُرف بـإنه وسيله منهجيه لتقييم تلك التطورات العلمية والتكنولوجية التي يمكن أن يكون له تأثير قوي على القدرة التنافسية‬
.‫ وخلق الثروة وجودة الحياة‬،‫الصناعية‬
The principle elements in identifying exploitable science could be summarized at three levels:
1. Identifying the link between areas of technology and the underpinning scientific knowledge
base
2. Identifying the product classes which would be significantly affected by technological
developments over a 20 year horizon
3. Identifying the relevant markets and the related pressures for change insofar as they influence
commercial incentives.
4. The process involved creating fifteen sectoral panels of 'experts' which consulted on a wide
basis with the relevant communities in industry, academia and government. Each panel
produced a report indicating the main forces for change, …etc.
5. May be one of the outcomes of the Foresight Programme will be a reallocation of resources
within publicly-funded science and technology in the UK.
: ‫اهم المبدا التي يمكن استغالل العلم من خاللها يمكن تلخيصها في ثالث مستويات‬
. ‫ معرفة الرابط بين مجاالت التكنلويجا التي تقوم عليها قاعدة العلم‬-1
.‫ معرفة مستيات االنتاج التي سوف تتاثر بتطور التكنالوجيا خالل العشرين سنه‬-2
.‫ تحديد األسواق المعنية والضغوط المتصلة من أجل التغيير بقدر ما تؤثر في الحوافز التجارية‬-3
-4
‫( يمكن ان يخصص الموارد من خالل تمويل العلوم والتكنالوجيا العام في بريطانيا‬outcomes ( ‫ واحد فقط من المخرجات‬-5
CHAPTER 12
THE FOUNDATIONS OF NATIONAL COMPETITIVENESS
Introduction:
The core argument developed in what follows is that, for firms as for countries, success is based
not on doing what others already do well, but on doing what others will never do as well. Hence
the focus of industrial policy should not be on improving the things we do worse than others, but
on improving what we do better.
•
Two widely held views of active industrial policy :
- Many believe that there is no what it calls national competitiveness, only the competitiveness
or competitive advantage of individual firms.
- There is also a view, frequently reiterated in the 1980s, that governments cannot and should
not try to 'pick winners'.
‫ عندما تقارن بريطانيا نفسها بالمنافسين‬. ‫المنافسه القوميه هي عنوان مثير للجدل ولذالك تجد ان البريطانين يعودون لهذا الموضوع باستمرار‬
‫جودة البضائع اقل شأنا ّ منها في اليابان ومؤشر االبتكار افي بريطانيا اقل منه في امريكا والتعليم‬. ‫المحليين تجد انها غير راضيه عن وضعها‬
. ‫في برياطانيا اقل منه في المانيا‬
.‫ الشركات مثلها مثل الدول النجاح فيها لس بفعل ما يفعله االخرون بل بفعل شي لم يفعله احد‬/ ‫هذي الحجه الجوهريه التي بنيت عليها النظريه‬
‫لذالك التركيز على السياسيه الصناعيه يجب ان اليكون بتطوير اشياء نحن نفعلها بطريقه اسوء من غيرنا بل بتطوير اشياء نحن نفعلها بشكل‬
. ‫جيد‬
-: ‫هنالك نظريتين‬
. ‫ الكثير يعتقد انه ليس هناك منافسه دوليه ( على مستوى الدول ) وانما قدرات تنفاسيه على مستوى الشركات الفرديه‬/1
) ‫ الحكومات ال يجب ان تختار الفائر ! ( ذي مدري وش تبي‬/2
2. The competitive advantage of Firms:
• The concept of competitive advantage sums up the idea of relative market success. Firms with a
competitive advantage in a market have a cost or quality advantage and can therefore earn
supernormal returns as a result of owning some characteristic of its operations that others cannot
emulate.
• Firms considering their corporate strategy - and economists advising them - are very interested
in the sources of competitive advantage.
• Firms can create over time the capabilities and organizational characteristics that give them a
durable edge over rivals even where entry barriers arc low. Three resources for that:
1. -One is what I call 'architecture': the network of relational contracts within and around the firm,
involving employees, suppliers and related firms.
2. -The second source is reputation, that sustains a price premium for quality products of a firm
selling experience goods.
3. -The third source is innovation. Innovation is a key source of competitive advantage, but one
whose benefits can be hard to appropriate and sustain.
‫ الشركات التي لديها ميزه تنافسيه في السوق لديها اما سعر مميز او جوده مميزه ولهذا تربح‬. ‫مفهوم الميزه التنافسيه يتلخص في نجاح السوق‬
. ) emulate( ‫ارباح عاليه بسبب امتالكها بعض الخصائص التي ال يمكن محاكاتها‬
. ‫الشركات تعتبراستراتيجياتها تهتم كثيرا بمصادرها التي تجعل لديها ميزه تنافسيه‬
‫تخلق الشركات مع الوقت القدره وخصائص خاصه بالشركه مما يجعلها تهمين لفتره طويله امام منافسيها ولها ثالث مصادر‬
‫ ( وهي شبكة من العالقات والعقود مع ومن خالل الشركه تهتم بالموظفين والموردرين للشركه‬architecture(‫ االولى تعرف بـ‬/1
‫ وهي استمرار تميزها بالسعر للمنتج الجيد للشركه‬.. ‫ السمعه‬/2
. ‫ االبتكار هو المفتاح للميز التنافسيه للشركات‬/3
-
-
3. The sources of national competitive advantage
3.1 Does national competitive advantage exist? ‫هل التنافس الدولي موجود ؟‬
• Yes, there is evidence indicate that there is such a thing as national competitive advantage. Most
cameras are made in Japan, if you use software; it is far more likely to have been created in the
United States than in any other country.
Do you think the existence of so many multinational firms contradicts this argument? Do multinationals make
geographical boundaries irrelevant? ‫هل وجود شركات متعددة الجنسيات ينقض هذا النظريه ؟ هل الشركات المتعددة الجنسيات تلغي الحدود الجغرافيه ؟‬
• No, because all of these reasons: a small number of companies which have genuine dual
nationality. Perhaps more genuinely multi-national companies will be created. But it will be a slow
process. Most companies still have a very obvious national identity.
‫ وربما تنشأ شركات اخرى لكن ببطء شديد‬, ‫ هنالك عدد قليل من الشركات متعددة الجنسيات‬, ‫ لهذي االسباب‬, ‫ال‬
‫واغلب هذي الشركات لديها جنسيه واحده واضحه فقط‬
3.2 The sources of geographical concentration:
‫مصادار التمركز الجغرافي‬
• Creates national competitive advantage?
• National competitive advantage could be derived from a scarce factor of production of the
country.
• There are some resources of economic importance which are aligned with national borders.
Language, Legal systems, fiscal rules and regulatory regimes also coincide with national
boundaries.
• The relationship between physical resources and industrial location used to be much closer than
now. But, what explains these clusters in the present?
• Economies of scale, transport cost advantages once transport systems are built, and local
demand for products can all play a role in sustaining industrial clustering. Yet many of the
reasons for the persistence of clusters of related firms in a particular area seem to be social
rather than narrowly technical: more concerned with trust and working relations than with cost
economies.
• It is in success in creating networks which facilitate these exchanges that many competitive
advantages in today's world depend
. ‫خلق ميز تنافسيه دوليه‬
. ‫يمكن ان تستمد الميزه التنافسيه من العناصر النادره الموجوده في البالد‬
. ‫العالقه بين المصادر الفيزيائيه و المصانع يجب ان تكون قريبه‬
. ‫ تكلفة النقل التنافسيه تبنى مره واحده والطلب المحلي للمنتج يمكن ان يلعب دورا في استقرار المجمعات الصناعيه‬. ‫وفورات الحجم‬
. ‫من النجاح ان تنشأ شبكة تسهل هذا التبادل وتعبر من الميز التنافسيه هذي االيام‬





3.3 Culture, trust and industrial success:
• A certain level of trust cuts transactions costs and smoothest the process of even straightforward
economic exchange.
• Elaborated forms of institutional trust and even personal are required for complex relational
contracting, and can be sustained by features of the legal environment, such as the legal
concept of 'good faith' in German and Italian legal doctrine.
• Shared experiences and values are a central element in developing trust.
• Marshall recognized that 'mutual knowledge and trust' reinforce a tendency to trade with those
we know, and are essential to efficient verbal contracts.
• Social institutions which support trust relationships and the development of tacit knowledge are
major advantages for industrial success.
. ‫خلق مستوى معين من الثقه يخفض تكاليف التعامالت ويسهل عملية التبادل االقتصادي المباشر‬
‫شوي‬
. ‫مشاركة الخبره و القيم يعتبر عنصر رئيسي لتطوير الثقه‬
‫ ) ان المعرفه والثقه المتبادله تعزز من التجاره مع من نعرفهم وتعتبر اساسيه لتفعيل العقود الشفهيه‬Marshall ( ‫ادرك‬
‫من اهم المزيا الصناعيه للنجاح هو ان تدعم المؤسسات االجتماعيه عالقاتها بـ الثقه وتطور المعرفه‬
•
•
•
•
•
3.4- the main determinants of national competitiveness. ‫المالمح الرئيسيه للمنافسه الدوليه‬
Explain the main features of the evolutionary view of competition?
(Firms chapter 12 Page 386)

The strength of the individual firms, like Coca-Cola, Microsoft.

The scarce of resources which are available within a country, but not to those outside it.

National competitive advantages lie in supportive networks of rims and activities (Speed and
flexibility of response, tacit knowledge)
Market Book
Chapter 5
Capital Markets
This chapter looks at how capital market work by drawing on the models of the market.
Imperfect information and uncertainty play an important role in the context of effectively with them.
Then, capital markets are introduced, they are classified into three forms:
Informal
Formal
Organized capital markets
Capital Markets brings together those with surplus funds (lenders) and those who wish to invest in
real assets (investors, entrepreneurs and borrowers).
What is the importance of finance in facilitating transactions?
They play an important role in capitalist society:
1- To facilitate physical investment and the accumulation of capital.
2- Well-functioning financial system direct investment towards its productive uses.
What mechanisms ensure co-coordination between the supply and demand for capital?
In the case of capital, an interest rate will co-ordinates the action of savers/lenders with
borrowers/investors.
If demand for funds by borrowers exceeds the quantity offered by lenders, interest will be high. To
attract the scarce funds of lenders, investors will have to offer an attractive rate of return. Funds then
will go to those investors who are able to offer the highest rate of return to savers. Willingness to pay
by a borrower should equate his or her expected return.
The summary is that: A properly functioning capital market will ensure that the investment projects
chosen are those which offer the highest prospective rate of return.
The price mechanism should ensure that society receives the benefits of an optimal level and
allocation of investment.
Neoclassical theory:
shows that the resulting level of investment will maximize consumption growth over time.
The impact of imperfect information and of uncertainty has led some to criticize this neoclassical
argument:
- Keynes referred as ‘the dark forces of time and ignorance’.
- J Stiglitz has pioneered the application of the new economics of information to finance. One can
appraise the quality and performance of financial systems by coping with imperfect information.
Capital markets are a mechanism which brings borrowers /investors together with savers /lenders.
1) Informal Markets: It is the private markets that the rural poor have traditionally turned to service
their financial needs. This was known as notary where anyone needing funds would approach his
functionary. The role of a notary was an important step towards the development of a formal financial
market.
2) Formal Financial markets:
Contain institutions and organizations which borrowers, investors (savers, lenders) can approach to
borrow (lend) funds.
3) Organized financial markets:
These markets have a formal system of exchange with a legal existence and a formal procedure for
settlement. Part of this was the BROKER who brings buyers and sellers together. He is part of the
Stock Exchange.
What is Security and what are it's
A lender, saver acquires a claim on a borrower as a consequence of a capital market transaction. A
security is a fungible, negotiable interest representing financial value. Securities are broadly
categorized into DEBT and EQUITY securities. The company or other entity issuing the security is
1) Debt contract: ‫تعريف من الكتاب وبعدين ارجع لهالشرح‬
Debt is a means of using future purchasing power in the present before a summation has been
earned. Some companies and corporations use debt as a part of their overall corporate finance
strategy.
Under a debt contract, the amount that the borrower must repay is independent of both the outcome
of the project and the borrower’s net worth, income but it may depend upon the state of the world.
2) Equity contract:
Under an equity contract the amount received by the saver depends on either the outcome of the
project or the borrower’s condition (income/net worth).
Holders of equity are entitled to all that is left after all the other claimants on the firm have been
paid.
Liquidity:
Liquidity measures the ease with which an asset can be converted into purchasing power.
What are the forms of capital markets? Three :
1) Broker markets:
2) Intermediary markets:
3) Internal Capital Markets:
Each of these institutional forms has some merits and demerits. Discuss..
Broker brings buyers and sellers together such as estate agents. Individual agents acquire claims
on the financial user of the funds and have no direct claim on the broker.
Intermediary markets is that the provider of funds acquires a claim not on the final user but on an
intermediary; similarly, the user of funds acquires an obligation to the intermediary.
They offer advantages both to the individual investors and to companies in whom investment is
made. Some of other advantages are Economies of scale and Risk reduction.
Broker and intermediary markets are external capital markets.
Internal capital market is a holding company whose only assets are shares of other companies which
it then controls.
Question 1:
What do we mean by Capital Market? And how does it differ from Auction Market?
(Markets chapter 5 Page 133  137)
Capital market: Capital Market bring together those with surplus funds (lenders) and
those who whish to invest in real assets (investors, entrepreneurs and borrows).
Auction Market: Auction markets trade in commodities that are homogenous and have a
large number of seller and potential buyers.
The Differ are:
Capital Markets:
 Bring together those with surplus funds (lenders) and those who wish to invest in real
assets (investors, entrepreneurs and borrowers).
 Saving is described as financial investment.
 They are financial markets where buyers raise the funds needed to buy capital goods;
they are not the actual markets for capital goods such as machinery and equipment.
 The price mechanism ensures coordination between the supply and demand.
 The roles of institutions are central.
 Uncertainty and information asymmetries exist.
 Investments funds are always available to fund uncertain projects due to the
marketability of the investment funds.
Auction market
 Trade in commodities that are homogeneous
 Have a large number of sellers and potential buyers.
 The role for institutions (firms and market makers) can reasonably be approximated by
the interaction of supply and demand, which is contrary to the capital market.
 Uncertainty and information asymmetries do not exist
Question 2:
Financial Markets are not Auction Markets, True or False? Explain why? (Markets chapter 5
Page 133  137)


Auction Market: Auction markets trade in commodities that are homogenous and
have a large number of seller and potential buyers.
Financial Market: Is the market that facilitates the transaction of money, funds,
between lenders and borrowers.
The Differ are:


Financial market is: uncertain, high risk and information asymmetric, non stable.
While auction market is: non-uncertain, low risk, full information, stable.
Question 3:
What are capital market, and what role is playing? Give some examples. (Markets chapter
5)
Capital market: Capital Market bring together those with surplus funds (lenders) and
those who wish to invest in real assets (investors, entrepreneurs and borrows).
The need to study the interaction between saver/lender on the one hand and
borrowers/investors on the other was also emphasized by Keynes. Indeed, it is central to
the whole Keynesian macro-economic analysis that unemployment can arise if there is no
mechanism to ensure coordination between savers and investors. By insure coordination
between supply and demand.
Starting with the neoclassical framework, the most obvious candidate is price mechanism
(for buyers it is in the price they pay to the seller).
In case of capital, this takes the form of an interest rate between the saver/lender and the
borrowers/investors.
If we assume perfect information and perfect certainty, this will be done in away where the
amount and allocation of investment is optimally ensured.
Suppose, however, that the demand for funds by borrowers exceeds the quantity offered by
lenders. Demand > Supply. To attract the scarce funds of lender, investors will have to
offer an attractive rate of return.
Funds thus will go to those investors who are able to offer the highest return to savers. (i.e.
who are able to pay high interest) otherwise they would be unwilling to offer such a high
yield. So investment projects selected by the capital markets will be those which offer the
highest prospective rate of return.
To summarize it, a properly functioning capital market will ensure that the investment
projects chosen are those which offer the highest prospective rate of return. Thus the price
mechanism should ensure that society receives the benefits of an optimal level and
allocation of investment.
Question 4:
There are some institutions that have emerged in capitalist system to facilitate the transfer
of funds from savers to investors, explain some of these institutions. (Markets chapter 5
page 136)
 Informal
 Formal
 Organized capital markets
Three institutions have emerged in capitalist system to facilitate the transfer of funds from
savers to investors:
1) Informal Markets: It is the private markets that the rural poor have traditionally turned
to service their financial needs. This was known as notary where anyone needing funds
would approach his functionary. The role of a notary was an important step towards the
development of a formal financial market.
2- Formal Financial markets: Contain institutions and organizations which borrowers,
investors (savers, lenders) can approach to borrow (lend) funds.
3- Organized financial markets: These markets have a formal system of exchange with a
legal existence and a formal procedure for settlement. Part of this was the BROKER who
brings buyers and sellers together. He is part of the Stock Exchange.
Question 5:
What is Security and what are its types? (Markets chapter 5 Page 136+137)


Securities can take many different forms but there are two principal varieties:
(Pure) debt instruments
Equity instruments.
Definitions:

Security: A lender/saver acquires a claim on a borrower as a consequence of a capital
market transaction. Such a claim is usually referred to as a security. ‫مطلوب من الدائن الذي‬
‫لديه نقود أن يحصل على تعهد من المدين الذي يقترض النقود‬

Debt Contract: Under a dept contract the amount that the borrower must repay in
independent of both the outcome of the project and the borrower's net worth/income but
it may depend upon the state of the world.
The debt contract might specify a fixed amount to be repaid by the borrower/investor
depending on the general level of interest rate. In pure debt contract, the amount that
the borrower/investor has to repay is independent of the future value of his project and
his income.
Equity Contract: Under an equity contract the amount received by the saver depends on
either the outcome of the project or the borrower's condition (income/net worth).
The lender of an equity contract is entitled to participate in the company's profit after all
other claimants of the firm has been paid
‫حصص المساهمين تكون عن طريق توزيع األرباح بعد دفع كل المستلزمات تجاا الراركم مان‬
.‫ الخ‬، ‫ ضريبم الحكومم‬، ‫أجور عمال وتوريد مواد خام‬
Question 6:
What are the forms of capital markets? (Markets chapter 5 Page 145+149)
1) Broker markets:
2) Intermediary markets:
3) Internal Capital Markets
Each of these institutional forms has some merits and demerits. Discuss..
 Broker markets: Brings buyers and sellers together such as estate agents. Individual
agents acquire claims on the financial user of the funds and have no direct claim on the
broker.
 Intermediary markets: Is that the provider of funds acquires a claim not on the final user
but on an intermediary; similarly, the user of funds acquires an obligation to the
intermediary. They offer advantages both to the individual investors and to companies in
whom investment is made. Some of other advantages are Economies of scale and Risk
reduction.
 Internal capital market is a holding company whose only assets are shares of other
companies which it then controls.
Broker and intermediary markets are external capital markets.
Chapter 6
Financial Systems and Innovation
Financial institutions play a central role in the process of capital accumulation. They facilitate the
transfers of savings towards useful investment projects.
This chapter examines how financial systems deal with a particular category of investment projects,
investment in innovation.
Financial systems are classified into two main types:
- Bank-based
- Stock market-based.
Stock market-based and bank-based system differ along three main dimensions:
1- The relative importance of long-term bank lending versus equity finance.
2- The nature of the relationship between banks and firms.
What are the differences between stock market-based systems and bank-based systems ?
Explain the properties of the two systems ..
Innovation requires investment.
Financial transactions are fraught with uncertainty and information asymmetries.
The level of uncertainty is particularly high in the case of innovative investment as the capital
accumulated is mostly intangible. Explain more…
Gains and losses from reducing uncertainty:
One of the great challenge to the financial system is to reduce that uncertainty as far as possible.
A well –organized and expert financial institution can reduce the uncertainty, Choosing the best
chance of success.
Diversification can be made to reduce the uncertainty.
Innovative activities differ across industries. There are 3 sorts of differences:
1. The visibility of innovation .. Explain.
2. The appropriability of innovation.. Explain.
3. The novelty of innovation.. Explain.
How do you define venture capitalists?
Question 1:
What are the differences between stock market-based systems and bank-based systems?
(Markets chapter 6)
Stock market-based and bank-based system differs along three main dimensions:

The first is the relative importance of long term bank lending versus equity finance.

The second is the nature of the relationship between banks and firms. This is
transactions or arm's-length in stock market-based systems and relational in bank-based
systems

In transactional lending each loan is seen as one-off and is secured against collateral (the
carcass value of the firm).

In relational lending, by contrast, each loan is seen as being part of an ongoing
relationship, in which the bank's risk is reduced by the banking having thorough
knowledge of the firm's prospects.

the third major difference is the nature of corporate culture:

In stock market-based system there is a pronounced separation between ownership and
control in large firms, which leaves greater scope for managerial discretion.

In bank-based system various stockholders, beside legal owners and managers, control
the actions of the firm to a much greater extent than in stock-market based systems.
Question 2:
What are the main differences between Stock-Market and Bank based Financial Systems?
Give Examples of Countries with Bank-based financial system and another with Stock based
Financial System. (Markets chapter 6 page 153 + 167)
1
2
3
Stock market-based
(US and UK)
A large number of firms are
quoted in the stock exchange
Dispersed ownership
Separation of ownership and
control
Bank-based
(Germany and Japan)
A small number of firms are quoted in
the stock exchange
Concentrated ownership and control
Association of ownership and control
From the historical discussion it emerges that a key characteristic on which they came to
differ is the priority that the state and the central bank have given to industrial development.
This priority seems to have been much higher in the bank-based economies.
Chapter 7
Competitive General Equilibrium
Competitive General Equilibrium
• Decentralization markets are promoting the economic prosperity more effectively than state
planning or intervention. Is this view true?
Up to some level is true, so, today we may see many phenomena like liberalization, deregulation,
privatization …etc.
• In the U k, the failure of keynesianism in the 1970 to delver non-inflationary growth
• Competitive general equilibrium is a Pareto-efficient outcome.
The aim of this chapter is to:
- Study deeply the model of competitive general equilibrium and its links with Pareto efficiency.
- Study how equilibrium prices are determined in the model.
- look at a different version of the model using neoclassical analysis of consumer and firm behaviors.
- finally, the chapter will look at the normative or welfare properties of competitive equilibrium
outcomes, and the policy conclusions.
2. Competitive general equilibrium (Walrasian M.):
• The model is based on the individual choices of economic agents in response to given market
prices and the exogenous variables of preferences, resource endowments and technology.
• The kaleidoscope of economic activity assumed to be fixed for a moment.
• The model assumed also equilibrium in every market, in order to find out whether individual
choices are consistent.
• Walrasian rule, supposes that a positive excess demand requires an increase in price and the
opposite is correct. This would prompt the auctioneer to call out to change the price.
• For illustration we will use partial equilibrium analysis of one market in which the prices of other
goods are held constant.
• We will use excess demand curve which shows the difference between the quantity demanded and
the quantity supplied of a good at each level of price.
3 The Determination of prices.
The Walrasian auctioneer, Competitive markets
• How equilibrium prices are actually arrived at in real situations where markets are out of
equilibrium! Walras suggested that a competitive market process of price adjustment could be
imagined as an auction.
• The processes of auction still continuous until excess demands are eliminated. Then the trades
actually take place at the announced prices. (stock exchanges and trading markets)
• Mathematical models of the process of Walrasian price adjustment discovered that if an excess
demand curve is negatively sloped throughout its range, then the Walrasian rule for price
adjustment will work fine towards a single equilibrium price. If the opposite case the rule will not
work.
‫كيف يصل السعر المتزن ( يعني السعر العادل ) الي وضع حقيقي حيث‬
‫ افترح ولرس ان عمليات االسعار في االسواق‬. ‫يصبح السوق غير متزن‬
. ‫التنافسيه تتعدل بما يشبه المزاد‬
‫) ثم ياخذ‬excess demands( ‫عمليات المزايده تستمر حتى ينتهي الـ‬
‫مكانها التداول الحقيقي‬
‫ ) بأنحراف سالب اذا نستتطيع استخدام‬excess demands(‫اذا كان الـ‬
)Walrasian rule for price adjustment( ‫نظرية ولرس‬
‫في الجهه االخرى التعمل النظريه‬
Unstable equilibrium
An upward-sloping excess demand curve
3.3 competitive market :
4. Some more models of general equilibrium.
4.2 General Equilibrium of exchange and consumption:
• Consumer’s preferences may be represented by using an
indifference map as in figure 7.6.
• The consumer reach to his utility maximization when or
Where the budget line is tangent to an indifference curve and this
occurs at point A.
• At point A, the marginal rate of substitution of good G for
good F, MRSG,F, is equal to the relative price of G in terms of F,
so, MRSG,F =PG/PF
•
•
•
•
By using the same principle of utility maximization, the simple general equilibrium model of
exchange and consumption will be developed in a competitive economy have two individuals
and two goods.
•
The model can be illustrated using the Edgeworth box diagram in figure 7.7.
•
Each individual receives a bundle of goods as an initial endowment. (50 kilos of figs (good
F) and 60 kilos of grapes (good G)
•
In this exchange economy, individuals can increase their utility only by exchange some of
their goods with each other.
Figure 7.7 An Edgeorth box diagram showing an initial allocation of two goods
between two consumers, and a price line.
•
The bundles that can be reached by exchange at a particular relative price can be represented by
drawing a price line in figure 7.7
•
The price of grapes in terms of figs is 2/3 for example.
The question here is, if the individuals were to trade with each other at this price, excess demand
for both goods would be zero!
- In order to examine that we shall use the Edgeworth box diagram in figure 7.8 since the
indifference maps of both individuals.
- The two indifference maps show that there are a number of points of common tangency
between the two sets of indifference curves.
- The points of common tangency represent positions of simultaneous utility maximization by
Xerxes and Yvonne, subject to different common prices which are shown by the different price
lines, P1, P2, P3 and P4.
- The contract curve is the line joined up all the points of common tangency of all the
indifference curves.
- These points (at contract curve), the simultaneous utility maximization is possible for two
consumers, subject to different price.
- The core of a two-person exchange economy is that portion of the contract curve that is
preferred by both consumers to the initial endowment.
Starting with an initial allocation at A, the equilibrium outcome must lie within the core, but
where within the core?
‫‪Equilibrium in production:‬‬
‫‪The aim of this section is finding out the amounts of the two goods produced and the‬‬
‫‪price at which they are sold.‬‬
‫‪-‬‬
‫‪The model considers all possible combinations of quantities of the two goods that could‬‬
‫‪be produced given existing technology & different techniques of production.‬‬
‫‪-‬‬
‫‪The model is using the production possibility frontier (PPF).‬‬
‫‪-‬‬
‫‪The slope of the PPF, ΔF/ΔG, is negative and its value shows the rate at which figs have‬‬
‫‪to be sacrificed in order to produce one more unit of grapes. (opportunity cost) and is‬‬
‫)‪called marginal rate of transformation (MRT G, f = - ΔF/ΔG‬‬
‫‪-‬‬
‫‪MRT between two goods measures the rate at which production of one has to be reduced‬‬
‫‪in order to increase production of the other by one unit. And this equal to the marginal‬‬
‫‪cost of good since it is the cost of the last unit produced.‬‬
‫‪-‬‬
‫منحنى إمكانيات اإلنتاج‬
‫)‪The Production Possibilities Frontier (PPF‬‬
‫أن مشكلة الندرة تتطلب منا العمل نحو استخدام الموارد االقتصادية النادرة استخداما ً أكثر كفاءة‪ ،‬وذلك من أجل إشباع أكبر قدر ممكن من‬
‫الحاجات والرغبات اإلنسانية الالمتناهية‪ .‬وعلى الرغم من استخدام هذا المبدأ‪ ،‬وبالتالي التوصل إلى مستوى التوظف الكامل في اإلنتاج وتحقيق‬
‫الكفاءة اإلنتاجية‪ ،‬إال أن االقتصاد ال يستطيع أن يستمر في إنتاج كميات متزايدة من السلع والخدمات المختلفة إلى ما النهاية‪ .‬وهذا بالطبع يعني‬
‫أن االقتصاد يعتمد على الموارد اإلنتاجية المستخدمة والمتوفرة لديه‪ ،‬وال يستطيع تجاوز الطاقة اإلنتاجية القصوى المتاحة له‪ .‬ويمكن شرح هذه‬
‫الفكرة باستخدام ما يسمى بـ"منحنى إمكانيات اإلنتاج" أو )‪ (Production Possibilities Frontier –The PPF‬والذي يوضح أقصى‬
‫كمية يمكن إنتاجها من السلع والخدمات المختلفة في االقتصاد‪ ،‬وذلك باستخدام الموارد اإلنتاجية المتوفرة وباستخدام التقنية المتوفرة‪ .‬ويعتمد‬
‫منحنى إمكانيات اإلنتاج )‪ (PPF‬على االفتراضات )‪ (Assumptions‬التالية‪:‬‬
‫‪ -1‬االقتصاد يعمل عند مستوى التوظف الكامل‪ :‬ويعنى هذا االفتراض أن جميع عناصر اإلنتاج المتوفرة مستخدمة استخداما ً أمثالً‪ ،‬وال توجد‬
‫هناك أي عناصر إنتاجية معطلة‪.‬‬
‫‪ -2‬ثبات كمية عناصر اإلنتاج في االقتصاد‪ :‬بحيث ال يمكن زيادة عدد أو حجم أو كميات عناصر اإلنتاج المتوفرة في االقتصاد‪.‬‬
‫‪ -3‬ثبات المستوى التقني‪ :‬ويعني هذا االفتراض استبعاد أي تطور تقني أو فني‪.‬‬
‫‪ -4‬سلعتين‪ :‬حيث نفترض أن االقتصاد يقوم بإنتاج سلعتين فقط‪ ،‬تتمثل األولى في سلعة استهالكية يتم استهالكها مباشرة‪ ،‬بينما تمثل السلعة‬
‫األخرى سلعة رأسمالية‪ ،‬والتي تستخدم في عملية إنتاج سلع وخدمات أخرى (كجهاز إنتاجي معين أو آلة إنتاجية معينة‪).‬‬
‫إن االفتراضات السابقة توضح أن الكميات التي يستطيع االقتصاد إنتاجها‪ ،‬هي كميات محددة‪ .‬وهذا يعني في حال استخدام جميع عناصر اإلنتاج‬
‫المتاحة –مستوى التوظف الكامل‪ -‬وطبقا ً للمستوى التقني المتوفر‪ ،‬فإن االقتصاد يستطيع إنتاج أقصى كمية ممكنة من السلع والخدمات ‪.‬‬
-
The marginal cost of producing one extra unit of good G, is the amount of good F it costs
to produce that unit of good G.
-
In fact, this is just the marginal rate of transformation of good G for good F. and that
means: MCG = MRT G,F
-
When the economy has more goods, then, the model would have use terms of ratios of
marginal costs of one good in terms of another would be equal to the ratio of their
marginal costs. So in general MRT G, F= MCG / MCF.
-
In a competitive economy, profit maximization required firms to produce at the level
which, marginal costs are equal to output prices.
-
So that, in equilibrium, MCG / MCF= PG/PF
-
This means, the marginal rate of transformation between the two goods is equal to their
relative price, MRT G, F = PG/PF
-
This result explains that profit maximizing under competitive conditions results in the
relative output price being equal to the value of the slope of the production possibility
frontier at point E in the graph 7.15.
-
Now we would like to expand the model of the exchange economy to include production
in order to check whether there exists a relative price that will support a general
equilibrium of exchange and production simultaneously!!!
General Equilibrium with production:
-
The task here is finding the equilibrium relative price and the output mix of figs and
grapes, with the amounts consumed by Xerxes and Evonne.
-
We learned before, the consumer optimization under price taking results in, the marginal
rate of substitution of grapes for figs is equal to the ratio of prices for both consumers:
MRS G, F = PG/PF
-
And since the profit maximization under price taking results in, the marginal rate of
transformation of grapes for figs being equal to the ratio of prices: MRT G, F = PG/PF.
-
This means, in equilibrium in a competitive economy, the marginal rate of substitution
must be equal to the marginal rate of transformation, this is:
MRS G, F = PG/PF = MRT G, F
-
This fact can be explained by combining the box diagram of exchange and consumption
with the production possibility frontier diagram. See Fig. no.7.16
Final notes:
-
The production possibility frontiers shows the competitive profit-maximizing output mix
at, E, where FE of figs and GE of grapes are produced, subject to the price line P.
-
These amounts of figs and grapes provide the dimensions for an Edgeworth box with the
competitive utility-maximizing consumption bundles of figs and grapes at E’, subject to
the price line P.
-
The MRS for each consumer equals the MRT because both equal the relative price.
-
This implies that the MRS and MRT lines are parallel because they have the same slope,
MRS G, F = PG/PF = MRT G,,F
-
The diagram also shows the complete equilibrium model, since, the consumers and
producers are maximizing their utility and profit functions. In the meanwhile, the excess
demand is zero.
Question 1:
Explain using graphics the meaning of Contract curve?
The contract curve: is the line joined up all the points of common tangency of all the
indifference curves. These points (at contract curve), the simultaneous utility maximization is
possible for two consumers, subject to different price.
Question2 :
Graphically, show the Demand, supply and excess demand model in a single market?
(Markets chapter 7 Page 172+173)
 The exogenous variables are the price of all other goods, preferences, resources
endowments and technology and supposed all are constant. If any of these exogenous
variables changed there would be a shift of the excess demand curve.

In a general equilibrium model, supposed to look at all markets simultaneously and so the
excess demand for any good is dependent on all prices. (can't show in graph)