The Fundamental Theorem of Welfare Economics

question 78

Multiple Choice

The Fundamental Theorem of Welfare Economics:

• A)Shows that the allocation of resources generated by a complete system of perfectly competitive markets results in all consumers attaining the same utility level.
• B)Refers to the biblical observation that "the poor ye shall always have with you."
• C)Implies that no intervention in the workings of markets can be justified on efficiency grounds.
• D)Holds that the allocation of resources generated by a complete system of perfectly competitive markets is Pareto efficient.

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Definitions:

Long Run Equilibrium

Long run equilibrium occurs when all inputs can be adjusted by firms, markets are perfectly competitive, and economic profit is zero, leading to a situation where firms just cover their opportunity costs.

Monopolistically Competitive

A market structure characterized by many sellers offering differentiated products, leading to competition based on product quality, brand, and price.

Zero Profits

A situation where a firm's total revenues exactly equal its total costs, typically in the long run in perfectly competitive markets.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, with few barriers to entry.