One condition for the first welfare theorem to hold is that there are no externalities. Can this condition be re-phrased as "all property rights have been established"? And how does this justify a wide range of what we see government doing?
What will be an ideal response?
Externalities arise when something is being produced but not bought or sold (either by a consumer whose consumption impacts someone else or a producer whose production creates benefits or costs that aren't priced). Thus, externalities arise because market is missing. Establishing ownership rights in the missing market establishes that market. Put differently, property rights take resources "out of the commons" -- and thus eliminate externalities. Much of what government does is precisely that -- insure the protection of private property rights (through law enforcement, national defense, court systems, etc.)
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If a shift in SRAS results from gains in productivity growth, which are typically measured in terms of a few percentage points per year, the effect will be:
a. relatively small over a few months or even a couple of years. b. relatively large over a few months or even a couple of years. c. relatively small over a few months but larger over a couple of years. d. relatively large over a few months but smaller over a couple of years.
The price of sugar that prevails in international markets is called the
a. export price of sugar. b. import price of sugar. c. comparative-advantage price of sugar. d. world price of sugar.
What is the opportunity cost of moving from point B to point A?
Hypothetical Production Schedule for Two-Product Economy
Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2018, then the value of your grandfather's salary in 2018 dollars is approximately
A) $84,775. B) $63,830. C) $37,200. D) $26,280.