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7 Cards in this Set
- Front
- Back
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The Second Welfare Theorem |
Any efficient allocation can be obtained as a market equilibrium, givenappropriate endowments. |
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Pareto efficient allocation |
A Pareto efficient allocation is an allocation such that there is no feasible reallocation that can make at least one person strictly better off without making anyone else worse off. |
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Increasing returns to scale if |
f(λL,λK) > λf(L,K) for all λ > 1, L, K. |
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Decreasing returns to scale if |
f(λL,λK) < λf(L,K) for all λ > 1, L, K. |
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Economies of Scale if the _____ cost (increases, decreases). |
AC decreases |
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Economies of Scale = _____ returns to scale |
Increasing |
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Use the Second Welfare Theorem to the situation where the Price ratio P1*/P2* = 1 and equilibrium allocation is X1=x2 and y1=y2 |
Parts of the answer illustrate the second welfare theorem because the answer to (d) shows that i is an efficient allocation and (f) shows that i can be obtained as a market equilibrium given appropriate endowments. |
