Assume that two individuals, A and B, are willing to trade products X and Y. Before a possible trade, A has the following marginal rates of substitution of X for Y (or of Y for X): MRSXYA = 0.80 (or equivalently, MRSYXA = 1.25)

Also, before a possible trade, B has these marginal rates of substitution of X for Y (or of Y for X): MRSXYB = 1.50 (or equivalently, MRSYXB = 0.67). Determine if trade can take place that would benefit either or both. If trade can benefit either or both, determine who will trade for what.


Trade is possible if the MRSXYA does not equal MRSXYB. In this problem, they are unequal; A is willing to give up up to 1.25 units of X to get one additional unit of Y, while B is willing to give up up to 1.5 units of Y to get one additional unit of X. Therefore A will trade X for Y while B trades Y for X. The exact terms of trade will be between 0.8 and 1.5 units of X for Y and will depend on the exact bargaining process.

Economics

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The discussion of Figure 2.2 in the text indicates that quantity demanded for most goods tends to increase as income rises. However, the quantity of bananas demanded in the U.S. tends to decrease as income rises

Under this condition, we expect that an increase in consumer income shifts the demand curve for bananas: A) rightward B) no shift. C) leftward. D) upward.

Economics

Refer to Figure 10.2. Which line represents wealth?



A. b

B. h

C. f + i

D. g

Economics

Efficient resource allocation is defined as MC = AC.

Answer the following statement true (T) or false (F)

Economics

Refer to the data. The gross domestic product is:



Answer the question on the basis of the following data. All figures are in billions of dollars.
A.  $326.
B.  $282.
C.  $307.
D.  $300.

Economics