The Significance of the First Fundamental Theorem of Welfare Economics

question 48

Multiple Choice

The significance of the First Fundamental Theorem of Welfare Economics is that:

• A)even if the economy is in competitive general equilibrium, significant intervention will be required to bring about economic efficiency.
• B)there is a possibility that an economy could simultaneously attain an efficient allocation and one in which the resulting distribution of utility is in some sense equitable.
• C)Even though households and firms behave independently and each pursues its own self-interest, the resulting equilibrium is efficient in the sense that it exploits all possible mutually beneficial gains from trade or from reallocation of inputs.
• D)resources are scarce in the economy and so must be managed for the long term.

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