3. Give (“a real life”) example of a market where you think the First Fundamental Theorem...
3. Give (“a real life”) example of a market where you think the First Fundamental Theorem of Welfare Economics does not hold. Explain why it does not hold in this market
Homework Answers
The first fundamental theorem of welfare economics states that any competitive market equilibrium will lead to a pareto optimal and effecient allocation of resources.
Or, in simpler words, competitive markets lead to social optimal equilibrium.
However, there are cases when this theorem doesnt hold. A big example of that would be market for public goods.
For e g market for imstallainst of street lights. In case of public goods, consumers only wish to free ride and dont come up with their true willingness to pay for resources, as a result of which the good is not allocated or the street light doesn't get installed. However, this is not a socially optimal allocation of resources since everyone would have been better off had the light been installed.
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3. Give (“a real life”) example of a market where you think the
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