The second theorem of welfare economics has certain advantages over first theorem of welfare economics. It explains that if all consumers have convex preferences and all firms have convex production possibility sets then Pareto efficient allocation can be achieved. The equilibrium of a complete set of competitive markets are suitable for redistribution of initial endowments. In the second welfare theorem, [...]
The exchange theory is most vital and practical theory in Advanced Microeconomics. Such theory is firstly formulated by F.Y. Edgeworth. He has assumed that there are two individuals and they exchange two commodities with each other. In the market, there are many commodities supplied and many commodities are exchanged. Two individuals bargain with each other to exchange commodities. Every individual [...]
The first theorem of welfare economics is based on the two assumptions: 1. In the economy, all commodities are competitive. The equilibrium in the economy is Pareto efficient. 2. There is market for all commodities. Each commodity is produced in the economy and consumption of commodity ads to utility function. In an economy, all markets are competitive. Consumers and producers [...]