Abstract
Abstract This chapter continues the study of how prices efficiently guide decisions in models with multiple markets that do not have distortions. It begins with two simple textbook examples to illustrate production, consumption, and trade. It then proceeds to the two welfare theorems, with attention to their assumptions to consider what they imply about outcomes of real markets. The chapter then turns to richer models and considers how efficient markets may not be part of an efficient social outcome. It ends with an appreciative interpretation of the welfare theorems and relates them to Adam Smith’s conception of the invisible hand.
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