The efficient efficiency condition holds
A) If every pair of individuals have inverse marginal rates of substitution for every pair of goods
B) If every pair of individuals shares the same marginal rate of substitution for every pair of goods
C) If every pair of individuals consume the same quantities of every pair of goods
D) If every pair of individuals shares different marginal rate of substitution for every pair of goods

Question

Quizplus · Accepted Answer

The efficient efficiency condition holds if every pair of individuals shares the same marginal rate of substitution for every pair of goods. This means that each individual is allocating their resources in the same way, resulting in a mutually beneficial outcome for everyone involved. Option A is incorrect as the inverse marginal rates of substitution need not be the same for every individual, and option C is incorrect as the quantities consumed by each pair of individuals need not be the same. Option D is incorrect as the marginal rate of substitution needs to be the same for efficient allocation, not different.

The Efficient Efficiency Condition Holds