In a two-agent two-good economy,a Pareto-efficient allocation implies that

Question

Quizplus · Accepted Answer

A Pareto-efficient allocation is one in which no further mutually beneficial trades are possible, meaning that both agents cannot be made better off without making the other agent worse off. Therefore, option A is the correct choice. Option B is not necessarily true for a Pareto-efficient allocation, as agents' indifference curves may not intersect at the optimal allocation. Option C is also not necessarily true, as agents' marginal rates of substitution may be equal at the optimal allocation. Option D is not relevant for a two-good economy where agents do not produce any goods.

In a Two-Agent Two-Good Economy,a Pareto-Efficient Allocation Implies That