ABSTRACT
This chapter summarizes the two sides of the debate in mainstream neoclassical economics about whether markets yield "efficient" outcomes. Neoclassical economic theory, however, starts from a given distribution of scarce resources, preferences, and technology and then focuses on how mutually beneficial, exchange-determined prices allocate resources among the multitudes of commodities. It is built upon the optimizing behavior of two primary agents: households and firms. As an economist Adam Smith articulated systematically for the first time how competition shapes and leads the evolution and growth of the economic system and accumulation of wealth via the division of labor and specialization. The magic of markets ensures first that profit-seeking sellers offer a composition of goods and services that aligns with the needs and wants of the buyers and their ability to pay. In the seventeenth and eighteenth centuries moral philosophers such as John Locke sought to uncover the natural laws that regulate social relations.
