Assume that Bill and Terry consume two goods X and Y,so that their marginal rates of substitution are equal.Under these conditions we can conclude that:
A)any trade between Bill and Terry will be mutually beneficial.
B)any trade between Bill and Terry will be beneficial for Bill but not for Terry.
C)any trade between Bill and Terry will be beneficial for Terry but not for Bill.
D)there can be no mutually beneficial trade between Terry and Bill.

Question

Quizplus · Accepted Answer

When the marginal rates of substitution of two goods between two individuals are equal, it means that both individuals value the trade-off between the two goods in the same way. Therefore, there is no incentive for trade, as neither party would gain additional utility from exchanging goods, leading to no mutually beneficial trade.

Assume That Bill and Terry Consume Two Goods X and Y,so