The welfare theory is the range within the political economy, which with the evaluation of market results and the analysis of market failure facts concerns itself. The subject of the welfare theory is the question of the use maximization within a national economy.

The market alone can provide only for an optimal Allokation, thus for an efficient distribution of scarce resources on production and consumption processes.

Conditions for efficiency (Pareto

1. TauschoptimumDie optimal use of the given factors of production is reached if the border rates of the substitution are all equal to individuals.

2. Optimal FaktoreinsatzDie of all enterprises must be maximized

3. Allokation ProduktionsfaktorenDie factors of production (i.d.R. capital and work) must be optimally on the production of different goods distributed. The exchange rates of the substitution between the goods must be alike.

For the determination of the optimal Produktionsstruktur of a national economy an overall economic transformation curve (overall economic production function) is confronted to an overall economic Indifferenzkurve. In the point of contact of the two curves the overall economic border rate of the transformation (production side) is equal to the overall economic border rate of the substitution (household side).

Such a pareto optimal condition is hardly to be found in the reality. A principal reason for it are different forms of market failure for example leads the formation of a trust to welfare losses. The state could intervene adjusting.

Articles in category "Welfare theory"

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