Figure 3-5

-Refer to Figure 3-5.At which of the following prices would both Hosne and Merve gain from trade with each other?
A) 5 wallets for 1.25 purses
B) 5 wallets for 2.5 purses
C) 5 wallets for 3.75 purses
D) Hosne and Merve could not both gain from trade with each other at any price.

Question

Figure 3-5
 
-Refer to Figure 3-5.At which of the following prices would both Hosne and Merve gain from trade with each other?
A) 5 wallets for 1.25 purses 
B) 5 wallets for 2.5 purses 
C) 5 wallets for 3.75 purses 
D) Hosne and Merve could not both gain from trade with each other at any price.

Quizplus · Accepted Answer

At a price of 5 wallets for 3.75 purses, both Hosne and Merve have the same marginal rate of substitution (MRS) of 2. This means that they are willing to trade 2 wallets for 1 purse. At any other price, one of them will have a higher MRS, indicating that the trade is not mutually beneficial. Therefore, C is the only price where they can both gain from trade with each other.

Figure 3-5 -Refer to Figure 3-5.At Which of the Following Prices Would