Economics · Welfare Economics
Which of the following is the most precise and complete formulation of the Second Fundamental Theorem of Welfare Economics?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A competitive equilibrium always achieves the second-best Pareto optimum.
- 2Only Pareto optimal allocations with an equal income distribution can be achieved as competitive equilibria.
- 3Every Pareto optimal allocation can be supported as a competitive equilibrium with suitable lump-sum transfers, provided preferences and production sets are convex.✓
- 4Every Pareto optimal allocation can be decentralised as a competitive equilibrium without any redistribution.
Correct answer
Every Pareto optimal allocation can be supported as a competitive equilibrium with suitable lump-sum transfers, provided preferences and production sets are convex.
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