Question

According to the first theorem of welfare economics: every competitive equilibrium is fair. if the economy...

  1. According to the first theorem of welfare economics:

    1. every competitive equilibrium is fair.

    2. if the economy is in a competitive equilibrium, there is no way to make anyone better off.

    3. a competitive equilibrium always exists.

    4. at a Pareto optimum, all consumers must be equally wealthy.

    5. Noneoftheabove.

Homework Answers

Answer #1

First theorem of welfare economics states is based on two assumptions

1) All commodities are competitive and

2)There exists markets for all commodities.

These assumptions lead to the fact that when market and equilibrium exists for all commodities and there is no government intervention. The theorem states that any competitive equilibrium (also known as the walrsasian ) would lead to pareto efficient allocation of resources. ANd the definition of pareto efficient allocatioj is that there is no way to make someone better off without making someone else worse off.

So answer is option if the economy is in a competitive equilibrium, there is no way to make anyone better off.

(You can comment for doubts )

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