Welfare State Theorem

The Welfare State Theorem, often associated with general equilibrium theory in economics, suggests that under certain conditions, a perfectly competitive market can lead to an efficient allocation of resources, where individual preferences are maximized without waste. This means that if everyone acts in their own best interest, the overall economy can achieve a state of balance where resources are used effectively. However, this ideal situation assumes complete information and no externalities, which often doesn't occur in real life, prompting discussions about the need for government intervention to address inequalities and ensure public welfare.