Answer to Question #208887 in Microeconomics for Himanshu Negi

Question

"As long as preferences are convex, every pareto efficient allocation can be supported as competitive equilibrium" Explain using edgeworthbox.

Answer 1

The second theorem of utility economics argues that for specific combinations of endowments, any Pareto optimum can be justified as a competitive equilibrium. The implication is that Pareto efficiency can be obtained even if beginning wealth is redistributed. Attempts to modify the distribution, on the other hand, may produce distortions of their own, making full optimality unlikely.