Question

Explain the difference between the first and second welfare theorems.

A.

The first welfare theorem discusses a competitive equilibrium with the help of the​ government; the second welfare theorem discusses a competitive equilibrium without the help of the government.

B.

The first welfare theorem states that a competitive equilibrium is​ Pareto-optimal under certain​ conditions; the second welfare theorem states that a Pareto optimum is a competitive equilibrium under certain conditions.

Your answer is correct.

C.

The first welfare theorem discusses a competitive equilibrium without the help of the​ government; the second welfare theorem discusses a competitive equilibrium with the help of the government.

D.

The first welfare theorem states that a Pareto optimum is a competitive equilibrium under certain​ conditions; the second welfare theorem states that a competitive equilibrium is​ Pareto-optimal under certain conditions.

I got this answer one right ^

i need help with the following:

These theorems are useful in that they _______________ (a. show the most sensible way to arrange an economy, b. can simplify analysis of models) In the​ closed-economy one period macroeconomic​ model, the _____ (a. first, b. second) welfare theorem allows the ________ (a. competitive equilibirium, b. pareto optimum) to be determined by finding the point where an indifference curve is tangent to the PPF

Answer 1

Q1)

First welfare theorem states that if there are no market failures, then every Competitive eqm CE is pareto optimal.

Second welfare theorem states that if the preferences are strictly convex, then with an appropriate reallocation of endowments, every Pareto effecient Allocation can be achieved as CE

So option B is right .

.

blanks

1) b) can simplify the Analysis

2) second welfare theorem

3) Competitive eqm

PPF is set of all pareto Optimal Allocations, so at tangency point, CE is found