Consider the claim that the market interaction of individually rational agents leads to an outcome that is socially rational. Address the following questions:In what sense is the above claim true? Explain what means that agents are individually rational and that the market outcome is socially rational as part of your answer.Identify at least two essential conditions that a market must satisfy for the claim to be true. (i.e.: the conditions must be necessary and sufficient for the claim to be true).Explain why the claim should be true when these two conditions are satisfied.Explain why the claim would no longer be true for markets that do not satisfy these two conditions, separately focusing on each one of the cases in which the claim is not true.For those cases in which the claim is not true, describe government interventions that may help the market outcome to become socially rational in some sense.

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Answered: Consider the claim that the market…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter2: Some Tools Of The Economist

Section: Chapter Questions

Problem 14CQ

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Consider the claim that the market interaction of individually rational agents leads to an outcome that is socially rational. Address the following questions:

In what sense is the above claim true? Explain what means that agents are individually rational and that the market outcome is socially rational as part of your answer.
Identify at least two essential conditions that a market must satisfy for the claim to be true. (i.e.: the conditions must be necessary and sufficient for the claim to be true).
Explain why the claim should be true when these two conditions are satisfied.
Explain why the claim would no longer be true for markets that do not satisfy these two conditions, separately focusing on each one of the cases in which the claim is not true.
For those cases in which the claim is not true, describe government interventions that may help the market outcome to become socially rational in some sense.

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