explain the first fundamental theorem of welfare economics.
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19th Apr, 2020
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The first fundamental theoram of welfare economy states that a market will tend towards a competitive equilibrium that is weakly Pareto optimal when the market maintains the following two attributes
• Complete market with no transaction costs and Therefore each sector also having perfect information.
•Price taking behavior with no monopolists and easy entry and exit from a market.
The perfect information is reffered to as no hidden information. With perfect information in a market , all consumers and producers have perfect and instantaneous knowledge of all market prices, their own utility and own cost functions.
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