3.7 — Welfare Economics — Readings

Monday, October 26, 2020

Required Readings:

• End of Ch.11 “Walras and General Equilibrium Theory” (on Pareto) in Landreth & Colander
• Ch.13 “General Equilibrium and Welfare Economics” in Blaug

Recommended Readings:

• Blaug, 1996, “The Marginal Conditions” excerpt pp.577-579
• Humphrey, 1996, “The Early History of the Box Diagram”
• Persky, 2002, “Retrospectives: Pareto’s Law”
• Colander, 2007, “Retrospectives: Edgeworth’s Hedonimeter and the Quest to Measure Utility”
• Gabaix, 2016, “Power Laws in Economics”

The following Wikipedia entries can also provide more background:

• Francis Ysidro Edgeworth

• Edgeworth Box

• Vildredo Pareto

• Pareto principle

• Arthur Cecil Pigou

• Welfare economics

• Fundamental theorems of welfare economics

Questions to Help Your Reading

• What are indifference curves?

• What is the contract curve?

• What does a “determinate” vs. an “indeterminate” outcome of exchange mean?

• Explain the Edgeworth box.

• What is a Pareto improvement? What does Pareto optimal mean?

• What are the two fundamental theorems of welfare economics?

• What are the marginal conditions at an optimum?