PADP 6950 Lecture Notes - Lecture 15: Fundamental Theorems Of Welfare Economics, Pareto Efficiency, Competitive Equilibrium

• School: University of Georgia
• Department: Public Administration and Policy
• Course: PADP 6950
• Professor: Emily Lawler

Document Summary

Lecture 15: welfare market & policy distortions: welfare economics, study of the ef ciency of resource allocations that results from alternative economic systems, public choice mechanisms, & policy regimes, welfare theorems. First welfare theorem > every competitive equilibrium allocation of resources is pareto ef cient. Second welfare theorem > any pareto ef cient allocation of resources can be reached through a competitive market equilibrium: provided that the government has the ability to make lump sum transfers of resources between economic agents. ** pareto ef cient allocations are identical to competitive equilibrium allocations. Policy distortions: distortion occurs when policy moves market away from the competitive equilibrium, if markets are perfectly competitive, direct government intervention unnecessary for achieving ef ciency & harmful to ef ciency, policy & pareto improvements. In most cases, adoption of the policy is not a pareto improvement virtually every policy has winners & losers.