At an interior point, if MRS is bigger than the ratio of prices at a given point, for a consumer with strongly monotone preferences, then: O Consumers with Cobb-Douglas preferences would benefit from this scenario, but consumers with perfectly substitutes preferences would not. O It is unclear whether a consumer has trades available that are beneficial to them. A consumer can improve their utility level by trading units of y for units of x at the market prices, which is beneficial once they give away less units of y to obtain one more unit of x, than what is needed to remain at the same IC. O At this point the consumer has no incentives to trade away.

At an interior point, if MRS is bigger than the ratio of prices at a given point, for a consumer with strongly monotone preferences, then: O Consumers with Cobb-Douglas preferences would benefit from this scenario, but consumers with perfectly substitutes preferences would not. O It is unclear whether a consumer has trades available that are beneficial to them. A consumer can improve their utility level by trading units of y for units of x at the market prices, which is beneficial once they give away less units of y to obtain one more unit of x, than what is needed to remain at the same IC. O At this point the consumer has no incentives to trade away.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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