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Nobody has to loose in an arbitrage. Economic relationships are not necessarily zero-sum (in fact often they will not be zero-sum). For example, if apples in city A are sold for ${\\\$}5$and apples in city B can be sold for${\\\$}8$, and we assume zero transaction cost there will be an arbitrage opportunity to earn ${\\\$}3$riskless profit per apple by ... 5 The Pigovian taxes are non-distortionary. For example imagine situation where government optimal spending is 100e and before Pigovian tax all 100e was raised through income tax which creates distortions on Labour market. Let’s say that after imposing Pigovian tax government gets additional 30e. Now since government needs only 100e for its optimal spending it ... 4 Consider an economy with two commodities. Production is trivial,$Y=\{0\}$, there is a single consumer with endowment$(1,1)$whose preferences are represented by the utility function given by$u(x_1,x_2)=\max\{x_1,x_2\}+1/2\cdot x_1 +1/2\cdot x_2$. These preferences are continuous, strictly monotone, but not convex. You can verify that there is no ... 4 It's important to distinguish between the effects of arbitrage on: a) the direct parties to arbitrage transactions; b) other agents in the markets in which the arbitrage takes place. Suppose arbitrageurs buy a good in market A in which its price is \$1 and sell in market B where its price is \$2. Assume further that in each market those prices have freely ... 4 The main point (already made by 1muflon1) is that no one needs to lose. (The presumption that someone must lose in any transaction or exchange is an example of the zero-sum fallacy. This is a common mistake by non-economists.) The comments to 1muflon1's answer seem to contain some objections/confusion. To clear these up, here's an example where everyone wins ... 2 [...] One way to interpret this result is to see our two-stage game as a mechanism to generate Cournot-like outcomes that dispenses with the mythical auctioneer. A justification is given in Kreps-Scheinkmann (1983). They argue that this is the outcome if price competition follows production. For details see the linked article. 2 First, note that both firms have constant returns to scale. This implies that firms must make zero profit in equilibrium. If they could make a positive profit, they could make even more profit by scaling up production and no profit-maximizing production plan would exist. So who owns which firm does not really matter. We know from the first welfare theorem ... 1 But my question is, will the slope of the demand curve change as it moves leftward? The slope does not change because one assumes that relative prices and consumer preferences do not change. This is a ceteris paribus interpreation you want to see what happens when new competitiors enter the market (keeping everything else as it is). There are the same ... 1 I might be wrong so feel free to point out any mistakes. Both of them have the same utility function$u(x,y)=max(x,y)$This means when$Px > Py$, they'll choose to consume$Y$instead of$X\$ since they get higher satisfaction by selling all units of x and purchasing y. Take the case of First seller, If he sells all X and purchases Y, His total demand ...