In a competitive general equilibrium, which of the following relations will not be true?
A) $M R S _ { X , Y } = M R T _ { X , Y }$.
B) $M R T _ { X , Y } = M C X / M C y$.
C) $M R S _ { X Y } = P _ { X } / P _ { Y }$.
D) $M R T _ { X , Y } = w / r$.

Question

In a competitive general equilibrium, which of the following relations will not be true? 
A) $M R S _ { X , Y } = M R T _ { X , Y }$.
B) $M R T _ { X , Y } = M C X / M C y$.
C) $M R S _ { X Y } = P _ { X } / P _ { Y }$.
D) $M R T _ { X , Y } = w / r$.

Quizplus · Accepted Answer

In a competitive general equilibrium, all factors of production will earn their marginal product, which means that $M R T _ { X , Y } = w / r$. Therefore, option D will be true and the other options will hold. In a competitive general equilibrium, factor prices are determined by the intersection of the demand and supply curves for capital and labor, and are not directly related to the relative prices of goods. Therefore, MRST_X,Y and MRS_XY will be equal to the ratio of factor prices (w/r) but will not be equal to MCX/MCy or PX/PY.

In a Competitive General Equilibrium, Which of the Following Relations MRSX,Y=MRTX,YM R S _ { X , Y } = M R T _ { X , Y }MRSX,Y​=MRTX,Y​

In a Competitive General Equilibrium, Which of the Following Relations $M R S _ { X , Y } = M R T _ { X , Y }$