Pareto Set vs Contract Curve: Welfare Geometry Explained
The Pareto set vs contract curve confusion comes down to one thing: the Pareto set is every efficient allocation, the...
Welfare economics
Missing Markets Economics: When Prices Fail to Exist
Missing markets economics studies the trades that never happen. When information, property rights, or excludability fail, no price emerges and...
Positive Externality Diagram: Subsidies and Underproduction
The positive externality diagram shows how markets underproduce vaccinations, education, and research, and how a per-unit subsidy at marginal external...
Private Cost and Social Cost: Externality Curves Explained
Private cost is what firms pay; social cost adds the spillovers they ignore. The MPC, MSC, and MSB curves explain...
Deadweight Loss: Welfare Cost of Market Distortions
Deadweight loss is the welfare triangle that disappears when taxes, tariffs, monopolies, or price controls cut off mutually beneficial trade...
Core of an Exchange Economy: Blocking Coalitions
core of an exchange economy analysis explains how blocking coalitions restrict feasible trades and why competitive markets shrink the stable...
Contract Curve: Pareto Efficient Allocations
contract curve analysis derives Pareto-efficient allocations in an Edgeworth box by equating two agents’ marginal rates of substitution at tangency...
Hicksian vs Marshallian Demand: Two Curves, One Consumer
Hicksian vs Marshallian demand is the central duality of consumer theory. One holds income constant for empirical work; the other...
Slutsky Equation: Decomposing Price Effects into Income and Substitution Effects
The Slutsky equation decomposes any price change into substitution and income effects, providing the analytical foundation for tax policy, inflation...
The Theory of Second Best: Why Fixing One Market Failure Isn’t Enough
The theory of second best shows that when one Pareto condition cannot be met, the others are no longer desirable....