Arturo and Belen consume only two goods, X and Y.They have strictly convex preferences and no kinks in their indifference curves.At the initial allocation, the ratio of Arturo's marginal utility of X to his marginal utility of Y is A and the ratio of Belen's marginal utility of X to his marginal utility of Y is B, where A B B)C

Question

Arturo and Belen consume only two goods, X and Y.They have strictly convex preferences and no kinks in their indifference curves.At the initial allocation, the ratio of Arturo's marginal utility of X to his marginal utility of Y is A and the ratio of Belen's marginal utility of X to his marginal utility of Y is B, where A < B.The competitive equilibrium price ratio is p_x/p_y = C. A)C > B B)C < A. C)C = A. D)C = B. E)A < C < B.

Quizplus · Accepted Answer

In a competitive equilibrium, the price ratio will lie between the marginal rate of substitution of the two consumers, so A < C < B.

Arturo and Belen Consume Only Two Goods, X and Y