We propose a systematic method of analyzing pseudopotential transferability based on linear-response properties of the free atom, including self-consistent chemical hardness and polarizability. Our calculation of hardness extends the approach of Teter\cite{teter} not only by including self-consistency, but also by generalizing to non-diagonal hardness matrices, thereby allowing us to test for transferability to non-spherically symmetric environments. We apply the method to study the transferability of norm-conserving pseudopotentials for a variety of elements in the Periodic Table. We find that the self-consistent corrections are frequently significant, and should not be neglected. We prove that the partial-core correction improves the pseudopotential hardness of alkali metals considerably. We propose a quantity to represent the average hardness error and calculate this quantity for many representative elements as a function of pseudopotential cutoff radii. We find that the atomic polarizabilities are usually well reproduced by the norm-conserving pseudopotentials. Our results provide useful guidelines for making optimal choices in the pseudopotential generation procedure.

Revtex (preprint style, 33 pages) + 9 postscript figures A version in two-column article style with embedded figures is available at http://electron.rutgers.edu/~dhv/preprints/index.html#lr