Imagine that an economy is at a point in an Edgeworth box where person 1's MRS of good 2 for good 1 equals 8/3 and person 2's MRS of good 2 for good 1 equals 1/6. This allocation

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Quizplus · Accepted Answer

For an allocation to be Pareto efficient in an Edgeworth box, the MRS (Marginal Rate of Substitution) of the two individuals must be equal. Here, person 1's MRS is 8/3 and person 2's MRS is 1/6, which are not equal. This discrepancy indicates that there is still room for mutually beneficial trade between the two individuals, making the current allocation not Pareto efficient.

Imagine That an Economy Is at a Point in an Edgeworth