chapter  6
2 Pages

Concluding Remarks

In traditional models without location choice, general equilibrium and normative analysis are closely related subjects. The relation is given by the full duality arising from the two welfare theorems. Every equilibrium allocation has to be efficient (first welfare theorem) and every efficient allocation can be sustained as an equilibrium with the proper redistribution of initial endowments (second welfare theorem). To be sure, competitive equilibrium should primarily be seen as a concept of positive theory. But the normative approach leads to sustaining price systems in an equally natural way. Here, prices simply play the role of dual variables.