If my MRS between two consumer goods is 6 and yours is 2
A)A Pareto preferred allocation does not
B)A Pareto optimal allocation does not exist
C)We are off the contract curve
D)We are on the contract curve

Question

Quizplus · Accepted Answer

If our MRS values for two different goods are significantly different, it usually means that we have different preferences for those goods. In this case, since my MRS is 6 and yours is 2, it suggests that I value the two goods differently compared to you. In a two-person exchange, this would mean that the trade-off that I am willing to make between the two goods is significantly different from the trade-off that you are willing to make. Therefore, it is highly likely that we are off the contract curve, i.e., there is no allocation of goods that both of us would find mutually beneficial. An allocation on the contract curve represents a Pareto optimal allocation, so we can conclude that a Pareto optimal allocation does not exist in this scenario. However, it is not necessary that we have a Pareto preferred allocation - it is possible that we cannot agree on any allocation that we both prefer.

If My MRS Between Two Consumer Goods Is 6 and Yours