Question

Given the current allocation of productive inputs, the marginal rate of trans-formation of food for clothing in a simple two-good economy is equal to 2. At the current allocation of consumption goods, each consumer’s marginal rate of substitution between food and clothing is 1.5. Is this economy efficient in terms of its product mix? If so, explain why. If not, describe a reallocation that will lead to a Pareto improvement.



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  • CreatedDecember 12, 2014
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