Question

explain what is meant by the term “economic efficiency.” From the standpoint of economic efficiency, is it a worthwhile goal to eliminate all pollution? 4.what is the “first theorem of welfare economics? “illustrate an efficient outcome for 2 individuals using the Edgeworth box diagram. Explain the conditions under which a market economy would be expected to achieve Pareto efficiency. Provide three examples of “market failure “that are relevant to environmental and natural resource economics.

Answer 1

Economic efficiency is when all the goods and factor of production are distributed to the most usable way and when the waste is minimized.That means , every scare resource of economy is used and distributed among producers and consumer to make it most useful.The main idea of economic efficiency based on the resource which is scare, air is a scare resource thus the goal to eliminate the air pollution is worth while but it will be not possible to eliminate the air pollution completely cause even if economic functions at their highest level it is not that they achieve full efficiency.

First welfare theorem tells that under certain assumptions, competitive equilibrium or walrasian equilibrium leads to have pareto efficient allocation of resources.

ICA - ICAT ICB OA XA XA a to b y Pare to optimal allocation is achieved; any point further b; we can't increase "As wricity without decreasing its utilety.

Conditions for which a market can achieve pareto efficiency are

• Marginal rate of substitution between any two products must be same for every individual who consumes both of the goods.
• Marginal rate of technical substitution between every two firms should be same for any factor of production when each firms uses that factor of production to produce same product
• marginal rate of transmission between any factor and any product must be same for any two firms
• MRS between two goods should be equal to the MRTS

Example of market failure are Second hand smoking can effect the air and the health of the second hand smoker.Air pollution is polluting one of the scare resources of nature,scare resource leads to have the tragedy of the common which is another market failure situation