When the marginal rates of substitution for two consumers differ:
A)the indifference curves of the consumers are tangent.
B)mutually beneficial trade cannot take place.
C)consumers' bargaining skills will determine their position on the contract curve.
D)trade will benefit one of the consumers and harm the other consumer.

Question

Quizplus · Accepted Answer

When the marginal rates of substitution differ, it indicates that the consumers value the goods differently, allowing for mutually beneficial trade until they reach a point where their MRS are equal, which is on the contract curve. Bargaining skills can influence their final position on this curve.

When the Marginal Rates of Substitution for Two Consumers Differ