ABSTRACT
In the last chapter, we derived the theoretical conditions under which the social welfare of a community is maximized without reference to the way in which resources in an economy might be allocated in practice. But given that we are in the western world operating in economies that rely to a large extent on markets to allocate resources, it is appropriate to begin this chapter by considering the extent to which resources might be optimally allocated in a market economy. We can then go on to identify the main obstacles to the achievement of an optimal allocation of resources in such an economy. In all this we will be concerned with the outcome of economic agents operating through markets and can, therefore, draw extensively on the analysis of the behaviour of economic agents in previous chapters. On the basis of that discussion we will conclude the book by considering briefly the implications for the role of government suggested by our analysis and by noting some of the problems arising.
