Introduction

Abstract

The standard Arrow-Debreu-McKenzie general equilibrium model of a competitive economy, provides a basic tool for the understanding of the functioning of competitive markets. It allows us to give a positive answer to the old question concerning the capability of prices and markets to coordinate economic activity in a decentralized framework. This model shows that, under a set of well specified assumptions, markets are in themselves sufficient institutions for the efficient allocation of resources. This may be called the Invisible Hand Theorem, and summarizes the most relevant features of competitive markets: the equilibria constitute a nonempty subset of the set of efficient allocations.