Briefly critique the following statements : (No more than five sentences!) (a) The First Welfare Theorem...

  

Transcribed Image Text:

Briefly critique the following statements : (No more than five sentences!) (a) The First Welfare Theorem demonstrates that a free market in equilibrium is Pareto efficient. We therefore know that the distribution of goods in equilibrium is fair. (b) The Second Welfare Theorem demonstrates that any Pareto Efficient allocation of resources can be maintained by the free market system. Hence, what we need to do for purpose of efficient public policy is to tax people until we get the desired allocation. (For example by taxing shelter so that it becomes more expensive relative to food and using the tax revenues to buy shelter for the poor.) (c) Raising minimum wage is always bad for employment. Briefly critique the following statements : (No more than five sentences!) (a) The First Welfare Theorem demonstrates that a free market in equilibrium is Pareto efficient. We therefore know that the distribution of goods in equilibrium is fair. (b) The Second Welfare Theorem demonstrates that any Pareto Efficient allocation of resources can be maintained by the free market system. Hence, what we need to do for purpose of efficient public policy is to tax people until we get the desired allocation. (For example by taxing shelter so that it becomes more expensive relative to food and using the tax revenues to buy shelter for the poor.) (c) Raising minimum wage is always bad for employment.

Answer rating: 100% (QA)

a The First Welfare Theorem states that a free market in equilibrium results in an efficient allocat... View the full answer