Paretos definition of economic efficiency

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Reference no: EM13774433

How did Neoclassical economists rationalize a policy of laissez faire with respect to the potential intervention into a market economy by government? Why do modern economists, on the other hand, acknowledge a role for government?

A well-structured answer will include:

1. Pareto’s definition of economic efficiency.

2. A definition of market externalities.

3. An observation that Neoclassical economists correctly observed that a system of competitive markets will achieve economic efficiency in the absence of externalities.

4. An observation that unfettered market equilibrium prices with produce too much of a good or service if an externality like pollution results.

Reference no: EM13774433

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