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Flashcards in Theory Of Market Failure Deck (3)
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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