Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q57 (CDS-II/2013) Economy › Basic Concepts & National Income › Market structure types Answer Verified

In a perfectly competitive economy production and consumption will both be Pareto optimal, if the economy operates at a point where :

Result
Your answer: —  Â·  Correct: A
Explanation

In economic theory, the First Fundamental Theorem of Welfare Economics establishes that under certain conditions, a competitive equilibrium leads to Pareto efficiency [1]. A perfectly competitive economy achieves Pareto optimality in both production and consumption when it operates at a point of general equilibrium [3]. At this point, the plans of all consumers to maximize utility and all firms to maximize profits are compatible, and the market clears where aggregate supply equals aggregate demand [4]. This state of zero excess demand and zero excess supply ensures that resources are allocated such that no individual can be made better off without making another worse off [2]. While output levels above or below equilibrium represent situations of excess demand or supply, only the general equilibrium point satisfies the criteria for simultaneous efficiency in production and consumption [3].

Sources

  1. [1] https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics
  2. [2] https://people.bath.ac.uk/sm2446/General%20Equilibrium_Efficiency_Public%20Good.pdf
  3. [3] Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > 5.1 EQUILIBRIUM, EXCESS DEMAND, EXCESS SUPPLY > p. 71
  4. [4] Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > Chapter 5 > p. 72
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
63%
got it right
✓ Thank you! We'll review this.

SIMILAR QUESTIONS

CDS-I · 2016 · Q67 Relevance score: -1.65

Which of the following statement(s) are true with respect to the concept of ‘EFFICIENCY’ as used in mainstream economics ? 1. Efficiency occurs when no possible reorganisation of production can make anyone better off without making someone else worse off 2. An economy is clearly inefficient if it is inside the Production Possibility Frontier (PPF) 3. At a minimum, an efficient economy is on its Production Possibility Frontier (PPF) 4. The terms such as ‘Pareto Efficiency’, ‘Pareto Optimality’ and ‘Allocative Efficiency’ are all essentially one and the same which denote ‘efficiency in resource allocation’ Select the correct answer using the code given below :

CDS-II · 2024 · Q70 Relevance score: -3.38

Which one of the following statements for a firm's equilibrium in Perfect Competition is not correct? (a) The market price must be greater or equal to average variable cost in the short run. (b) The market price must be equal to marginal cost. (c) The market price must be equal to average cost in the long run. (d) The marginal cost decreases at the equilibrium output.

CAPF · 2019 · Q12 Relevance score: -3.85

Which one of the following is NOT correct?

CAPF · 2019 · Q60 Relevance score: -3.89

Which one of the following statements is true with regard to an economy which is on its production possibility frontier?

CAPF · 2019 · Q57 Relevance score: -4.11

In a closed economy with no taxes, if the marginal propensity to consume is always 0.90, then the value of the multiplier will be