Flashcards: Welfare Economics and Market Efficiency — 18 cards

Market allocation — process?

Distribution of resources via supply and demand.

Role of the state — in allocation?

Corrects failures and influences initial resource distribution.

Pareto criterion — for allocation?

An allocation where no one can be better off without worse off.

First welfare theorem — states?

Market equilibrium is Pareto-efficient under ideal conditions.

Second welfare theorem — states?

Any Pareto-efficient allocation can be achieved via redistribution.

Pareto efficiency — meaning?

No further improvements without harming someone.

Walrasian equilibrium — characterized by?

Prices that clear all markets, with supply equals demand.

Main welfare theorems — link?

Market equilibrium and Pareto efficiency under certain assumptions.

Market failure — cause?

Violations of welfare theorem assumptions like externalities or info gaps.

Externalities — definition?

Costs or benefits not reflected in market prices.

Public goods — features?

Non-excludable and non-rivalrous, often underprovided by markets.

Pigouvian tax — purpose?

Internalizes negative externalities to improve efficiency.

Coase theorem — states?

Private negotiations can resolve externalities if transaction costs are low.

Asymmetric information — effect?

Leads to market failures like adverse selection and moral hazard.

Natural monopoly — characteristic?

Single firm can supply efficiently due to economies of scale.

Market failure — result?

Inefficient outcomes requiring potential government intervention.

Welfare economics — focus?

Optimal resource allocation and social welfare evaluation.

Pareto improvement — means?

Making someone better off without hurting others.