The slope of the contract curve for two consumers is determined by the
A)relative prices of goods.
B)absolute prices of goods.
C)marginal rates of substitution of the two trades.
D)income of the two traders.

Question

Quizplus · Accepted Answer

The slope of the contract curve for two consumers is determined by the marginal rates of substitution of the two traders. The marginal rate of substitution is the rate at which a consumer would be willing to trade one good for another while remaining indifferent. Thus, the slope of the contract curve reflects the ultimate trade-off between the consumption of two goods and is determined by the preferences of the two consumers. The relative and absolute prices of goods and the income of the traders are important factors in determining the position of the contract curve but do not affect the slope of the curve.

The Slope of the Contract Curve for Two Consumers Is