Pareto efficiency is achieved when it is impossible to improve the welfare of one individual without making someone else worse off. This condition is known as the Pareto criterion.

A social welfare function is a mathematical function that aggregates the individual utilities of all members of a society into a single measure of overall well-being.

Market failures occur when the market mechanism fails to allocate resources efficiently. Externalities, public goods, and natural monopolies are all examples of market failures.

Government intervention can be used to correct market failures, redistribute income, and provide social insurance. These interventions can help to promote economic well-being by improving the efficiency of resource allocation, reducing inequality, and providing a safety net for those in need.

The utilitarian social welfare function has been criticized for ignoring the distribution of income, assuming that all individuals have the same preferences, and being difficult to measure individual utilities.

Cardinal utility can be measured on an absolute scale, meaning that it can be assigned a numerical value. Ordinal utility, on the other hand, can only be ranked, meaning that it can only be said that one outcome is preferred to another.

A non-excludable good is a good that cannot be prevented from being consumed by those who do not pay for it. A national defense system is a non-excludable good because it is impossible to prevent people from benefiting from it, even if they do not pay taxes.

The Coase theorem states that in the absence of transaction costs, externalities can be internalized through bargaining between the parties involved. This means that the parties can reach an agreement that eliminates the externality, even if the government does not intervene.

A merit good is a good that is believed to have positive externalities, meaning that it benefits society as a whole. Education, healthcare, and national defense are all examples of merit goods.

Economic efficiency is a broader concept that includes Pareto efficiency. Pareto efficiency is a necessary condition for economic efficiency, but it is not sufficient. Economic efficiency also requires that resources are allocated in a way that maximizes the total value of production.

A natural monopoly is a market structure in which there is a single supplier of a good or service. This is because there are high barriers to entry, such as economies of scale, that make it difficult for other firms to enter the market.

A Pigouvian tax is a tax levied on the producer of a negative externality, such as pollution. This tax is designed to discourage the production of the negative externality. A Coase theorem solution, on the other hand, is a negotiated agreement between the parties involved in an externality. This agreement can take the form of a payment from the producer of the negative externality to the recipient of the negative externality.

The Rawlsian social welfare function has been criticized for being based on the assumption that people are rational and self-interested, ignoring the distribution of income, and being difficult to implement in practice.

A private good is a good that is excludable, meaning that it is possible to prevent people from consuming it if they do not pay for it, and rivalrous, meaning that one person's consumption of the good reduces the amount available for others. A public good is a good that is non-excludable, meaning that it is impossible to prevent people from consuming it even if they do not pay for it, and non-rivalrous, meaning that one person's consumption of the good does not reduce the amount available for others.

A positive externality is a benefit that spills over to third parties, such as when a firm's research and development activities lead to new technologies that benefit other firms. A negative externality is a cost that spills over to third parties, such as when a firm's pollution harms the health of nearby residents.