Which of the theorems of welfare economics considered that the general competitive equilibrium is Pareto Optimal ?
Only first theorem of welfare economics
Only first theorem of welfare economics option is correct.
The First Fundamental Theorem of Welfare Economics states that, under conditions of complete markets, price-taking behaviour and no externalities, any general competitive equilibrium is Pareto optimal. It is the formal restatement of Adam Smith’s invisible-hand conjecture.
The Second Fundamental Theorem addresses a different question: it says that any Pareto-optimal allocation can be supported as a competitive equilibrium after an appropriate redistribution of initial endowments. It therefore starts from a Pareto-optimal point and works back to a supporting price system, rather than asserting that competitive equilibria are automatically optimal.
Hence the direct claim that “competitive equilibrium is Pareto optimal” belongs to the First Theorem alone; the Second Theorem, by itself, does not establish it.
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