Which of the following theorems in welfare economics states that any Pareto efficient allocation can be achieved as a competitive market equilibrium by a suitable redistribution of initial endowments?

💡 Solution & Explanation

The Second Fundamental Theorem of Welfare Economics asserts that any Pareto efficient resource allocation can be achieved as a competitive market equilibrium through appropriate lump-sum redistribution of initial endowments. This theorem provides a theoretical justification for government intervention through redistribution without abandoning market efficiency.