The slope of the contract curve for two consumers is determined by the
A)Relative prices of goods
B)Absolute prices of goods
C)Marginal rates of substitution of the two trades
D)Income of the two traders

Question

Quizplus · Accepted Answer

The slope of the contract curve is determined by the marginal rate of substitution (MRS) of the two traders. The MRS represents the amount of one good that a consumer is willing to give up for one additional unit of the other good while still maintaining the same level of utility. Therefore, the slope of the contract curve is determined by the MRS values of the two consumers at each point along the curve.

The Slope of the Contract Curve for Two Consumers Is