The first fundamental theorem of welfare economics indicates that, when surplus demand or supply exists, the allocations of inputs and outputs in the economy define a Pareto-optimal outcome.

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The first fundamental theorem of welfare economics actually states that any competitive equilibrium leads to a Pareto-optimal allocation of resources, assuming perfect competition, no externalities, and no market imperfections. It does not specifically address surplus demand or supply situations.

The First Fundamental Theorem of Welfare Economics Indicates That, When