New answers tagged pareto-efficiency
6
Quoting your quote, emphasis altered by me:
The “theory of the second best” clearly argues that once markets depart at all from perfect competition, efficiency may well be increased by further departures. For example, in the case of monopsony power in low-wage labor markets, legislated minimum wage increases can potentially move wages closer to efficient ...
2
Let $x_i(p, w_i)$ be consumer $i$'s (Marshallian) demand and $y_j(p)$ be firm $j$'s profit-maximizing supply at price $p$.
A competitive equilibrium is a price $p$ such that
$$
\sum_{i=1}^I x_i(p, w_i(p, e_i)) = \sum_{j=1}^J y_j(p).
$$
By strict concavity of $u_i$'s, consumer demands are functions, rather than correspondences. Assume also that $y_j(p)$ are ...
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