If the MRS at an initial market basket between books [B] and Frisbees [F] is 6B/1F for Dave and 3B/1F for Diane,then:
A)mutually beneficial trades are not possible.
B)Diane will accept 4 books from Dave.
C)Diane will accept 2 books from Dave.
D)Dave will accept 2 Frisbees from Diane.

Question

Quizplus · Accepted Answer

From the initial market basket, we can see that Dave is willing to give up 6 books in exchange for 1 Frisbee, while Diane is only willing to give up 3 books for 1 Frisbee. This means that Dave values Frisbees more than Diane does. Therefore, it would be mutually beneficial for Diane to trade some books with Dave for some Frisbees.

To determine the best choice, we need to find the point where their MRS's are equal. Setting 6B/1F = 3B/1F, we get B/F = 1/2. This means that Dave is willing to give up 2 books for 1 Frisbee, and Diane is willing to give up 4 books for 2 Frisbees.

Therefore, Dave should offer 2 books in exchange for 1 Frisbee from Diane, as it benefits both parties. Hence, the best choice is D.

If the MRS at an Initial Market Basket Between Books