General Equilibrium Theory and Welfare Economics

Partial equilibrium analysis is an economic approach used to study the equilibrium condition in a single market or a specific sector, assuming that other …

General equilibrium analysis is a fundamental concept in economics. It examines how supply and demand interact simultaneously across multiple markets. …

General equilibrium analysis examines how different markets within an economy interact and adjust to reach a state of balance. However, equilibrium does …

The Rawlsian social welfare function, introduced by philosopher John Rawls, is a framework in welfare economics that assesses societal well-being by …

Pareto efficiency, also known as Pareto optimality, is a key concept in economics and decision theory that describes the allocation of resources where no …

The Edgeworth Box, introduced by Francis Edgeworth, is a graphical tool used to analyze the efficient allocation of resources between two entities, such …

Assessing the efficiency of resource allocations requires an understanding of individual preferences, often represented by indifference curves. These …

Exchange efficiency occurs at the tangency point of the two individuals’ indifference curves. At this point, the marginal rates of substitution (MRS) for …

The distribution of goods among consumers is primarily shaped by market prices, which act as signals of relative scarcity and value. These prices guide …

In an Edgeworth box, the Consumption Contract Curve identifies all Pareto-efficient allocations of goods between two consumers. These allocations are …

Input efficiency refers to the way productive resources like labor and capital are distributed across industries to maximize overall output. Unlike …

In any production process, resources such as labor and capital must be allocated efficiently to maximize output. When multiple producers rely on the same …

When the isoquants of two producers are tangential, they have the same Marginal Rate of Technical Substitution (MRTS) at that point. The MRTS describes …

The production contract curve represents a set of Pareto-efficient allocations of inputs—such as capital and labor—between two producers when the …

The Edgeworth Box illustrates all possible ways to allocate a fixed amount of labor and capital between two firms—one producing wheat and the other …

Output efficiency guarantees that an economy allocates resources effectively to produce goods and services that reflect consumer preferences. It …

The Marginal Rate of Transformation (MRT) is a key concept in understanding output efficiency. It measures the rate at which resources must be reallocated …

Output efficiency happens when resources are used in a way that balances what people want with how goods are produced. This means the marginal rate of …

The First Welfare Theorem explains how resources are allocated efficiently in perfectly competitive markets. It states that in these markets, …

Markets don’t always work perfectly. In theory, they should allocate resources efficiently, but real-world problems often get in the way. One major …

The Second Welfare Theorem states that any Pareto-efficient allocation can be reached with proper redistribution. It suggests that an equitable initial …

Lump-sum transfers help redistribute wealth without altering people’s work or consumption choices. Unlike taxes or subsidies, which change behavior by …