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Eduncle posted an MCQ

October 19, 2019 • 18:07 pm

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UGC NET
Economics

The First Fundamental Theorem of Welfare Economics requires

Choose Your Answer:

A producers and consumers to be price takers

B that the economy operate at some point on the utility possibility curve

C that there be an efficient market for every commodity

D All of the above

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Eduncle Best Answer

The First Theorem states that a market will tend toward a competitive equilibrium that is weakly Pareto optimal when the market maintains the following three attributes:

(i) complete markets - No transaction costs and because of this each actor also has perfect information, and

(ii) price-taking behavior - No monopolists and easy entry and exit from a market. Furthermore, the First Theorem states that the equilibrium will be fully Pareto optimal with the additional condition of:

(iii) local nonsatiation of preferences - For any original bundle of goods, there is another bundle of goods arbitrarily close to the original bundle, but that is preferred.
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