By the end of this chapter, you should understand:
- what we mean by welfare economics
- horizontal and vertical equity
- the concept of Pareto efficiency
- how the ‘invisible hand’ may achieve efficiency
- the concept of market failure
- why partial removal of distortions may be harmful
- the problem of externalities and possible solutions
- how monopoly power causes market failure
- distortions from pollution and congestion
- why missing markets create distortions
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