In a general equilibrium model, an allocation that equates MRS with MRTS unless:
A)the inputs are not perfectly substitutable
B)consumption of one of the goods provides positive spillover effects
C)the isoquants are convex
D)the production functions exhibit constant returns to scale

Question

Quizplus · Accepted Answer

Consumption of one of the goods provides positive spillover effects will break the equality of MRS and MRTS.

In a General Equilibrium Model, an Allocation That Equates MRS