The Second Fundamental Theorem of Welfare Economics requires
A) that indifference curves be convex to the origin.
B) that isoquants be concave to the origin.
C) that there are no set prices for Pareto efficient allocations.
D) that production be twice as large as consumption.
E) all of these answer options are correct.

Question

Quizplus · Accepted Answer

The Second Fundamental Theorem of Welfare Economics states that any Pareto efficient allocation can be achieved by some competitive equilibrium, given certain conditions such as convexity of preferences (indifference curves being convex to the origin) and production sets. This convexity ensures that consumers' preferences exhibit diminishing marginal rates of substitution, a key assumption for the theorem's validity. The other options listed do not directly relate to the requirements of the Second Fundamental Theorem.

The Second Fundamental Theorem of Welfare Economics Requires