The consumption contract curve
A)Is always a straight line
B)Will always have the same MRS
C)Is the locus of Pareto optimal points
D)Is always negatively sloped

Question

Quizplus · Accepted Answer

The consumption contract curve represents the combinations of goods and services that two individuals can consume given their initial endowments and their preferences. Pareto optimality means that it is impossible to make one individual better off without making the other individual worse off. Therefore, the consumption contract curve will be the locus of Pareto optimal points. It is not always a straight line, it may have different MRS (Marginal Rate of Substitution) at different points, and it may be positively or negatively sloped depending on the preferences of the individuals.

The Consumption Contract Curve