Pareto Efficient Equilibrium of the Perfectly Competitive Economy Model
PCE Exercise 3
And that means…
You have been asked to participate in a panel discussion Economics for Everyone, part of a series of talks aimed at having undergraduates explain their majors to students from other fields.
Your specific task is to explain what economists mean when they say a perfectly competitive economy is efficient.
You will have just under 30 seconds, which translates into one or two paragraphs. Write out your planned statement explaining the Pareto Efficient equilibrium of the perfectly competitive economy model.
Post the 1-2 paragraph statement here.
PCE exercise 4
In theory, the PCE model gets it right. It minimizes the cost of producing the goods consumers want and makes sure the goods go to those who value them. It uses society’s resources in the best possible way.
But we don’t live in a Panglossian world. Use your detailed knowledge of the PCE model to explain why the Pareto efficient outcome may not be the best of all possible worlds.
Write a 1-2 paragraph discussion of the limitations of the PCE model, focusing on the issue(s) most important to you.
PCE exercise 5
This is an exercise in exploratory writing. Answering these prompts will let you start to explore these issues and begin to organize your thoughts and ideas.
Is the competitive economy moral?
Why do we talk about the perfectly competitive model?
Post a one (1) paragraph response to each question.
PCE Exercise
Student Full Name
Institutional Affiliation
Course Full Name
Professor Full Name
Due Date
PCE Exercise
Exercise 3: Pareto Efficient Equilibrium of the Perfectly Competitive Economy Model
An economy is said to be operating at Pareto efficiency when resources cannot be redistributed to make one person better off without making at least one person worse off. Notably, Pareto efficiency does not imply equality or justice but rather that resources are distributed most economically effectively. When no economic reform can improve even one person without making at least one person worse, we say the economy is in a Pareto optimal condition (Steinemann, 2005). Certain adjustments may be made to the distribution of resources in an economy where at least one person benefits and no one suffers. Every shift toward Pareto efficiency in resource allocation must satisfy this criterion.
As it is almost difficult to make any societal reform, such as a change in monetary policy, without leaving at least one person worse off, Pareto efficiency has gained prominence in economics. When goods are distributed to a group of people, a Pareto efficiency occurs when there are adjustments in the distribution of resources that do not damage anybody but enhance at least one person's life. The theory demonstrates that there will be a continuous increase in economic value due to Pareto advances up to the point when the economy reaches a Pareto equilibrium (Mankiw, 2020). As Pareto efficiency does not imply equality and does not consider public well-being on a massive scale, welfare economics argues that the economy may achieve a competitive market equilibrium at a Pareto-efficient allocation using wealth transfers. If there are opportunities to make one-time, large-scale wealth transfers from those with more resources under y to those with fewer resources under x. The former is more efficient than the latter. The result of this will be that citizens of the economy will be at least as prosperous as ...