Course: AEC 313 - Intermediate Applied Economics: Markets, Welfare and Policy This week, you have learned the principles of general equilibrium in Chapter 10. This process log gives you a chance to...

First and second welfare theorem of economics
1. In all economies, the competitive equilibrium is effective when rivalry results in a Pareto-efficient allocation; no one can be made better off without making anyone worse off.
2. Any efficient allocations can be obtained through competition: Given a sufficient initial allocation of commodities, any efficient allocations can be obtained through competitive trading.
Discussion on first welfare theorem
The indifference curves of both groups of products are tangent in a strategic equilibrium in the same price line bundle. As a consequence, the slope (MRS) of each individual's indifference curve matches the slope of the price line, implying that the slopes of the indifference curves are identical.
At equilibrium MRSx=MRSy=Px/Py.
In economic equity customers enjoy marginal rates of substitution which are equal....