Discuss the basic difference in approach adopted by Pigou and Pareto to deal with problems of welfare economics.

These concepts constructed in terms of products can be transposed in terms of social marginal costs and private marginal costs. We know that, in effect, in the optimum, the marginal productivities of each peseta spent in any productive resource are equal to each other and equal to the inverse of the marginal costs and, consequently, to the inverse of the price of the product. It follows that any divergence between social and private products translates into a divergence of the opposite direction between social and private costs.

The advantage of this transposition is that the reasoning can now be constructed in market terms and leads to advance in the analysis of the appropriate economic policy measures. In summary, according to Pigou, the correction of external effects goes through a tax system that taxes those that create negative effects without the market making them pay their cost, and through a system of subsidies to stimulate those who enrich the community. without perceiving the dividends. Suggestive solution, without a doubt, but difficult to put into practice; by hypothesis, the market does not disclose the cost or the advantages that penalize or remunerate; Then, on what basis could we calculate taxes and subsidies?