Economics • Economic BasicsHard
Which of the following theorems in welfare economics asserts that any Pareto efficient allocation can be achieved as a competitive market equilibrium through a suitable redistribution of initial endowments?
A. First Fundamental Theorem of Welfare Economics
B. Second Fundamental Theorem of Welfare Economics✓ Correct Answer
C. Stolper-Samuelson Theorem
D. Rybczynski Theorem
💡 Solution & Explanation
The Second Fundamental Theorem of Welfare Economics establishes that any desired Pareto efficient resource allocation can be attained as a competitive market equilibrium through appropriate lump-sum redistribution of initial endowments. The First Theorem states that every competitive equilibrium is Pareto efficient. These theorems form the core of microeconomic welfare theory.
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