The Second Theorem of Welfare Economics states that:
A)all Walrasian equilibria are also social welfare maxima.
B)social welfare maxima will usually be Pareto inefficient.
C)any social welfare maximum can be a Walrasian equilibrium with suitable transfers of initial endowments.
D)all Pareto optimal allocations are social welfare maxima.

Question

Quizplus · Accepted Answer

The Second Theorem of Welfare Economics asserts that any social welfare maximum can be achieved as a Walrasian (competitive) equilibrium, provided that there are suitable transfers of initial endowments among individuals. This theorem essentially means that with the right redistribution of resources, any efficient allocation of resources (where efficiency is defined in terms of social welfare maximization) can be realized through market mechanisms.

The Second Theorem of Welfare Economics States That