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UNCERTAINTY AND PARETO OPTIMALITT 1
Author(s) -
Tisdell C.
Publication year - 1963
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1963.tb01497.x
Subject(s) - disequilibrium , economics , substitution (logic) , production (economics) , pareto principle , frontier , microeconomics , medicine , history , operations management , archaeology , computer science , ophthalmology , programming language
Summary If production, is subject to increasing costs, then an economy will not reach its production possibility frontier unless the technical rates of substitution are the same for all firms. If firms anticipate different price ratios, and this is a reasonable supposition for an uncontrolled market, their rates of technical substitution will differ and the economy's aggregate production will fall below its production possibility frontier. If the government controls the market by operating a forward price scheme, it brings all rates of technical substitution, into equality and so it can feasibly raise national income. It can do this even if its forward prices are not “equilibrium ones”, 2 and if they are no closer to equilibrium than those which occur in an uncontrolled market. National income can be raised by forward prices even when associated schemes such as those involving buffer stocks and balancing funds result in additional taxation and disequilibrium price ratios.