Editing General equilibrium theory (section)

===First Fundamental Theorem of Welfare Economics===
The First Fundamental Welfare Theorem asserts that market equilibria are [[Pareto efficient]]. In other words, the allocation of goods in the equilibria is such that there is no reallocation which would leave a consumer better off without leaving another consumer worse off. In a pure exchange economy, a sufficient condition for the first welfare theorem to hold is that preferences be [[locally nonsatiated]]. The first welfare theorem also holds for economies with production regardless of the properties of the production function. Implicitly, the theorem assumes complete markets and perfect information. In an economy with [[externalities]], for example, it is possible for equilibria to arise that are not efficient.

The first welfare theorem is informative in the sense that it points to the sources of inefficiency in markets. Under the assumptions above, any market equilibrium is tautologically efficient. Therefore, when equilibria arise that are not efficient, the market system itself is not to blame, but rather some sort of [[market failure]].