In a competitive pure exchange economy, if the initial endowment is on the diagonal line between the two origins, then, according to the first welfare theorem of economics, there must always be a competitive equilibrium in which no trade takes place.

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Quizplus · Accepted Answer

The first welfare theorem states that any competitive equilibrium leads to a Pareto efficient allocation of resources. However, it does not imply that no trade takes place if the initial endowment is on the diagonal; rather, it suggests that the market can reach an efficient allocation through trade, depending on preferences.

In a Competitive Pure Exchange Economy, If the Initial Endowment