The First Theorem of Welfare Economics can be expressed as

Question

Quizplus · Accepted Answer

The First Theorem of Welfare Economics states that any competitive equilibrium in a market with perfect competition and no externalities is Pareto-efficient, meaning that no individual can be made better off without making another individual worse off. Therefore, the competitive equilibrium is efficient, making choice (D) the correct answer. Choice (A) is incorrect because the First Theorem does not specify anything about transaction costs. Choice (B) is incorrect because it is possible for endowments to be reallocated in a competitive equilibrium as individuals trade with each other. Choice (C) is also incorrect because not all efficient allocations can necessarily be achieved through competition in a market with perfect competition and no externalities, as other factors may be relevant to the production and consumption of goods and services.

The First Theorem of Welfare Economics Can Be Expressed as