Question

What are the assumption on which the first fundamental therom of welfare economic rest?

Answer 1

Answer:

The first theorem of welfare economics is based on the two assumptions: 1. In the economy, all commodities are competitive. The equilibrium in the economy is Pareto efficient.

Answer 2

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The first states that, under certain idealized conditions, any competitive equilibrium or Walrasian equilibrium leads to a Pareto efficient allocation of resources. The second states the converse, that any efficient allocation can be sustainable by a competitive equilibrium.