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Envelope Theorem for Constrained Optimization | Production | Economics

The Envelope theorem is explained in terms of Shepherd’s Lemma. In this case, we can apply a version of the envelope theorem.  Such theorem is appropriate for following case: Envelope theorem is a general parameterized constrained maximization problem of the form Such function is explained as h(x1, x2 a) = 0. In the case of […]

The Second Theorem of Welfare Economics | Microeconomics

The second theorem of welfare economics has certain advantages over first theorem of welfare economics. It explains that if all consumers have convex preferences and all firms have convex production possibility sets then Pareto efficient allocation can be achieved. The equilibrium of a complete set of competitive markets are suitable for redistribution of initial endowments. […]

The Rybczynski Theorem (RT) (With Diagram) | Economics

The Rybczynski Theorem (RT) says that if the endowment of some resource increases, the industry that uses that resource most intensively will increase its output while the other indus­try will decrease its output. The relative factor intensity is measured by the ratio of factor use in each industry. The theorem suggests that unbalanced growth in […]

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