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Unformatted text preview: welfare. 6. The Second Fundamental Theorem of Welfare Economics states that society can attain any Pareto efficient allocation of resources by making a suitable assignment of initial endowments and then letting people freely trade with each other. 7. A second reason for government intervention is market failure, which may occur in the presence of market power or when markets do not exist. 8. The fact that the market does not allocate resources perfectly does not necessarily mean the government can do better. Each case must be evaluated on its own merits. 9. Welfare economics is based on an individualistic social philosophy. It does not pay much attention to the processes used to achieve results. Thus, although it provides a coherent and useful framework for analyzing policy, welfare economics is not universally accepted. Review Powerpoint slides and handout Do end of chapter problems 1, 4, 7, and 8...
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- Spring '11