Editing Edgeworth box (section)

==The second fundamental theorem of welfare economics==
[[File:Edgeworthpareto2.svg|280px|left|thumb|Fig. 7. The second welfare theorem]]Now consider an economy in which the consumers have endowments '''ω''' as shown in Fig.&nbsp;7. Left to itself a free market will take them to '''ω''''. But suppose that some other position in the box – say '''α'''' – is considered socially preferable. We can assume that the socially desired position is Pareto optimal. 

We may think of the price lines (shown as dashed in the diagram) as corresponding to different distributions of real income, and movement along them as reallocation of resources while incomes remain fixed. 

Then in order to reposition society at the desired point '''α'''' it is not necessary for the government to redistribute resources in such a way that Octavio holds (α'<sub>''<span style="margin-left:-2px;padding-right:2px">x</span>''</sub>,α'<sub>''<span style="margin-left:-2px;padding-right:2px">y</span>''</sub>) and Abby holds the complement: it is sufficient to reallocate resources to take the economy to ''any'' point (say '''α''') on the price line through '''α'''', and then leave the market to find its own equilibrium. Indeed, so long as the government recognises a desirable distribution of income it does not need to have any idea of the optimal allocation of resources.

In a statement for a more general economy, the theorem would be taken as saying that '''α'''' can be reached by a monetary transfer followed by the free play of market exchange; but money is absent from the Edgeworth box.

The second fundamental theorem does not provide a blueprint for righting society's ills. The government may decide to reallocate resources between Octavio and Abby, moving them from '''ω''' to '''α''' in advance of the day's trading; and in consequence whoever loses out may decide to take less to market the next day. The second fundamental theorem takes no account of the distortions introduced by the reallocation.<ref>See the discussion on pp.&nbsp;556&nbsp;f. of Mas-Colell et al.</ref>