Which of the following statements about the contract curve is correct?
A)The slope of the contract curve reflects the relative prices of the goods to consumers.
B)All points on the contract curve are efficient.
C)A point below the contract curve is always preferred to a point above the curve.
D)A point on the contract curve shows inequitable allocation of resources.

Question

Quizplus · Accepted Answer

The contract curve represents the set of efficient allocations that can be achieved by voluntary trade between consumers. Therefore, all points on the contract curve are efficient, making option B the correct answer. Option A is incorrect because the slope of the contract curve reflects the rate at which consumers are willing to trade one good for another rather than relative prices. Option C is incorrect because a point on the contract curve is considered to be Pareto efficient, meaning that no individual can be made better off without making someone else worse off. Therefore, a point below the curve cannot be preferred to a point on the curve as it is less efficient. Option D is incorrect because a contract curve represents a very equitable allocation of resources as consumers are able to trade until they reach a mutually beneficial point.

Which of the Following Statements About the Contract Curve Is