Economic equilibrium in the context of "Productive efficiency"

A Pigouvian tax (also spelled Pigovian tax) is a tax on a market activity which is generating negative externalities, that is, costs incurred by third parties. It imposes costs corresponding with the externalities, internalizing those costs to improve Pareto efficiency. Ideally, the tax is set equal to the external marginal cost of the negative externalities, in order to correct an undesirable or inefficient market outcome (a market failure).

In the presence of negative externalities, parties who did not consent to the transaction or activity, and did not receive payment, nevertheless incur some of the costs, so the total cost is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to a harmful excess of the activity. Examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.

In game theory, a solution concept is a formal rule for predicting how a game will be played. These predictions are called "solutions", and describe which strategies will be adopted by players and, therefore, the result of the game. The most commonly used solution concepts are equilibrium concepts, most famously Nash equilibrium.

Many solution concepts, for many games, will result in more than one solution. This puts any one of the solutions in doubt, so a game theorist may apply a refinement to narrow down the solutions. Each successive solution concept presented in the following improves on its predecessor by eliminating implausible equilibria in richer games.

In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied such that an economic equilibrium is achieved for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics.

In situations where a firm has market power, its decision on how much output to bring to market influences the market price, in violation of perfect competition. There, a more complicated model should be used; for example, an oligopoly or differentiated-product model. Likewise, where a buyer has market power, models such as monopsony will be more accurate.

In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for adjustment so that there are no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry. This contrasts with the short-run, where some factors are variable (dependent on the quantity produced) and others are fixed (paid once), constraining entry or exit from an industry. In macroeconomics, the long-run is the period when the general price level, contractual wage rates, and expectations adjust fully to the state of the economy, in contrast to the short-run when these variables may not fully adjust.

Evolutionary economics is a school of economic thought that is inspired by evolutionary biology. Although not defined by a strict set of principles and uniting various approaches, it treats economic development as a process rather than an equilibrium and emphasizes change (qualitative, organisational, and structural), innovation, complex interdependencies, self-evolving systems, and limited rationality as the drivers of economic evolution. The support for the evolutionary approach to economics in recent decades seems to have initially emerged as a criticism of the mainstream neoclassical economics, but by the beginning of the 21st century it had become part of the economic mainstream itself.

Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather, it focuses on the non-equilibrium processes that transform the economy from within and their implications, considering interdependencies and feedback. The processes in turn emerge from the actions of diverse agents with bounded rationality who may learn from experience and interactions and whose differences contribute to the change.

In economics, partial equilibrium is a condition of economic equilibrium which analyzes only a single market, ceteris paribus (everything else remaining constant) except for the one change at a time being analyzed. In general equilibrium analysis, on the other hand, the prices and quantities of all markets in the economy are considered simultaneously, including feedback effects from one to another, though the assumption of ceteris paribus is maintained with respect to such things as constancy of tastes and technology.

Mas-Colell, Whinston & Green's widely used graduate textbook says, "Partial equilibrium models of markets, or of systems of related markets, determine prices, profits, productions, and the other variables of interest adhering to the assumption that there are no feedback effects from these endogenous magnitudes to the underlying demand or cost curves that are specified in advance." General equilibrium analysis, in contrast, begins with tastes, endowments, and technology being fixed, but takes into account feedback effects between the prices and quantities of all goods in the economy.

Criticism of socialism is any critique of socialist economics and socialist models of organization and their feasibility, as well as the political and social implications of adopting such a system. Some critiques are not necessarily directed toward socialism as a system but rather toward the socialist movement, parties, or existing states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds, such as in the economic calculation problem and the socialist calculation debate, while others hold that certain historical examples exist and that they can be criticized on practical grounds. Because there are many types of socialism, most critiques are focused on a specific type of socialism, that of the command economy and the experience of Soviet-type economies that may not apply to all forms of socialism. Different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved. Critics of specific models of socialism might be advocates of a different type of socialism.

According to the Austrian School economist Ludwig von Mises, an economic system (specifically centralized economic planning) that does not use money, financial calculation, and market pricing would be unable to effectively value capital goods and coordinate production, and therefore in his view socialism is impossible because it lacks the necessary information to perform economic calculation in the first place. Another central argument leveled against socialist systems based on economic planning is based on the use of dispersed knowledge. Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals; this is known as the economic calculation problem. Other economists criticize models of socialism based on neoclassical economics for their reliance on the faulty and unrealistic assumptions of economic equilibrium and Pareto efficiency.