Consider the claim that the market interaction of individually rational agents leads to an outcome that is socially rational. Address the following questions:In what sense is the above claim true? Explain what means that agents are individually rational and that the market outcome is socially rational as part of your answer.Identify at least two essential conditions that a market must satisfy for the claim to be true. (i.e.: the conditions must be necessary and sufficient for the claim to be true).Explain why the claim should be true when these two conditions are satisfied.Explain why the claim would no longer be true for markets that do not satisfy these two conditions, separately focusing on each one of the cases in which the claim is not true.For those cases in which the claim is not true, describe government interventions that may help the market outcome to become socially rational in some sense.

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Answered: Consider the claim that the market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the claim that the market interaction of individually rational agents leads to an outcome that is socially rational. Address the following questions:

In what sense is the above claim true? Explain what means that agents are individually rational and that the market outcome is socially rational as part of your answer.
Identify at least two essential conditions that a market must satisfy for the claim to be true. (i.e.: the conditions must be necessary and sufficient for the claim to be true).
Explain why the claim should be true when these two conditions are satisfied.
Explain why the claim would no longer be true for markets that do not satisfy these two conditions, separately focusing on each one of the cases in which the claim is not true.
For those cases in which the claim is not true, describe government interventions that may help the market outcome to become socially rational in some sense.

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