In an Edgeworth exchange box diagram,if the two consumers' indifference curves intersect at point A,then:
A)point A is on the contract curve.
B)the consumers' MRSs' differ.
C)voluntary exchange will not change the distribution of goods between consumers.
D)the contract curve is convex to the origin.

Question

Quizplus · Accepted Answer

At point A, where two consumers' indifference curves intersect, their Marginal Rates of Substitution (MRS) must differ. This is because the MRS at any point on an indifference curve represents the rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility. If their indifference curves intersect, it implies that at the point of intersection, each consumer values the goods differently, leading to differing MRSs. This difference in valuation is what drives the potential for beneficial trade between the two consumers.

In an Edgeworth Exchange Box Diagram,if the Two Consumers' Indifference