Figure 11-3
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In Figure 11-3, if person 1 and person 2 have the indicated quantities of cheese and crackers and are on the indicated indifference curves, is there the possibility of mutually beneficial trade? Explain.
What will be an ideal response?
Yes. For person 1, the marginal utility of crackers is higher than the marginal utility of cheese; for person 2, the opposite is true. Person 1 will gain utility by trading cheese to obtain crackers, giving up a good with low marginal utility to gain a good with higher marginal utility. Person 2 will accept the trade for the same reason—it will increase total utility.
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