Theory Of Market Failure Flashcards
1
Q
Potential Efficiency
A
When the benefits are greater than the cost of undertaking the activity
2
Q
Our definition of efficiency
A
Efficiency is achieved when all possibilities for potential Pareto improvements are exhausted
3
Q
Conditions for first welfare theorem
A
1) Well defined, enforceable and transferable property rights
2) No externalities
3) No transaction Costs
4) No goods with public goods characteristics
5) Perfect Information
6) Firms & HH act perfectly competitive
7) A full set of markets including future markets with full set of prices
