consider a pure exchange economy with two consumers and two goods. assume the preferences of both consumers are cobb-douglas. at the pareto optimal allocation, it is known that both consumers are consuming both goods. it is also known that the goods are exchanged at a ratio of three units of good 2 for one unit of good 1. consumer a's marginal rate of substitution between these two goods is . (use a negative sign in your answer if necessary.)

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10-12-2022
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consider a pure exchange economy with two consumers and two goods. assume the preferences of both consumers are cobb-douglas. at the pareto optimal allocation, it is known that both consumers are consuming both goods. it is also known that the goods are exchanged at a ratio of three units of good 2 for one unit of good 1. consumer a's marginal rate of substitution between these two goods is . (use a negative sign in your answer if necessary.)

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smecloudbird18 smecloudbird18 · Answer 1 · 2022-12-17T16:55:01+01:00

The marginal rate of substitution for consumer A between good 1 and good 2 at the Pareto optimal allocation is -3.

This means that consumer A is willing to give up 3 units of good 2 to obtain 1 unit of good 1.

The quantity of a good that a customer is prepared to consume in comparison to another good, provided that the new item is equally fulfilling, is known as the marginal rate of substitution (MRS) in economics. The indifference theory use MRS to examine customer behaviour.

For example, if a consumer is willing to give up 6 bananas in exchange for 3 apples, the MRS = -6 / 3 = -3.

To know more about MRS here

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