Welfare Theorem

The Welfare Theorem states that, under ideal conditions with perfect competition and complete markets, the allocation of resources in an economy that results from individual self-interests (market equilibrium) is also socially optimal, meaning it maximizes overall societal welfare. In other words, when markets operate efficiently, they tend to produce the best possible distribution of goods and resources for everyone. This theorem highlights the connection between individual decision-making and social well-being, suggesting that well-functioning markets can, in theory, lead to the best outcomes for society as a whole.