Asked by Jawwad Siddiqui on Jul 30, 2024
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The second welfare theorem of economics states that if preferences are convex, then any Pareto optimal allocation could be achieved as a competitive equilibrium after some reallocation of initial endowments.
Second Welfare Theorem
An economic principle stating that under certain conditions, any efficient allocation of resources can be attained through a competitive equilibrium, assuming perfect markets and price flexibility.
Pareto Optimal
A distribution state of resources where trying to improve the status of one individual inevitably leads to the decline of another's.
Competitive Equilibrium
A state in a market-based economy where supply equals demand, and prices are stable, facilitating the optimal distribution of resources.
- Understand the effects of the First and Second Welfare Theorems within welfare economics.
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Learning Objectives
- Understand the effects of the First and Second Welfare Theorems within welfare economics.
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