If the initial allocation of goods is not efficient, consumers will:

Question

Quizplus · Accepted Answer

In an economy, if the initial allocation of goods is not efficient, consumers will engage in trading goods at market prices. This process continues until no further trades can make someone better off without making someone else worse off, a state known as Pareto efficiency. This is achieved when the marginal rate of substitution (MRS), which is the rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility, is equalized across all consumers. This equalization of MRS across consumers ensures that resources are allocated in the most efficient manner possible, where no further gains from trade are possible.

If the Initial Allocation of Goods Is Not Efficient, Consumers