In a competitive general equilibrium, which of the following relations will not be true? A) MRS_X,Y = MRT_X,Y. B) MRT_X,Y = MC_X/MC_Y. C) MRS_X,Y = P_X/P_Y. D) MRT_X,Y = w/r.

Question

Quizplus · Accepted Answer

The relation MRT_X,Y = w/r is not necessarily true in a competitive general equilibrium, as the relative factor prices (w and r) will depend on the supply and demand of labor and capital in the economy. This means that the marginal rate of technical substitution between X and Y (MRT_X,Y) may not necessarily equal the ratio of factor prices (w/r). The other three relations listed are generally true in a competitive general equilibrium.

In a Competitive General Equilibrium, Which of the Following Relations