When the marginal rates of substitution differ for two consumers:
A)indifference curves are tangent.
B)mutually beneficial trade is possible.
C)multiple prices for goods emerge.
D)the consumer with steeper indifference curves is happier.

Question

Quizplus · Accepted Answer

If the marginal rates of substitution differ for two consumers, it means that they have different preferences and values for the goods being consumed. This, in turn, creates an opportunity for mutually beneficial trade, where both consumers can exchange goods in a way that makes them better off. For example, one consumer may be willing to trade more of a good they value less for a good that the other consumer values more than they do. This type of trade is only possible when the marginal rates of substitution differ between consumers.

When the Marginal Rates of Substitution Differ for Two Consumers