The Significance of the Second Fundamental Theorem of Welfare Economics

question 12

Multiple Choice

The significance of the Second 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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Definitions:

Trade Deficits

The economic condition that occurs when a country imports more goods and services than it exports, resulting in a negative balance of trade.

Smoot-Hawley Tariff

A U.S. law enacted in 1930, which raised tariffs on over 20,000 imported goods to record levels, leading to a significant decrease in international trade.

Great Depression

A severe worldwide economic depression that took place mostly during the 1930s, starting in the United States following the stock market crash of 1929.

Revenue-Raising

Activities or policies implemented to increase the financial income of an organization or government.