An economy produces outputs X and Y using inputs L and K. Which of the following is NOT required for economic efficiency? A) MRTS_LK = MRS_XY for all producers and consumers. B) MRT_XY = MRS_XY for all producers and consumers. C) MRS_XY is equal for all consumers. D) MRTS_LK is equal for all producers. E) None of the above. All of these are required for economic efficiency.

Question

Quizplus · Accepted Answer

MRTS_LK = MRS_XY is not required for economic efficiency. This equation represents the condition for factor price equalization, which is a sufficient but not necessary condition for economic efficiency. Economic efficiency can still be achieved without factor price equalization if other conditions such as perfect competition, no externalities, and complete information are met. Therefore, option A is the correct answer.

An Economy Produces Outputs X and Y Using Inputs L