John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6 liters of soft drinks and 2 sandwiches. With these endowments, John's marginal rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina's (MRS) of soft drinks for sandwiches is equal to 1/3. a) Is this allocation of resources efficient? Explain. b) Now suppose that there is a large number of Johns and a large number of Tinas and suppose that the price of a sandwich is $1 and the price of a soft drinks is $3. Given these prices and given the initial allocations, do vou thin
John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6 liters of soft drinks and 2 sandwiches. With these endowments, John's marginal rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina's (MRS) of soft drinks for sandwiches is equal to 1/3. a) Is this allocation of resources efficient? Explain. b) Now suppose that there is a large number of Johns and a large number of Tinas and suppose that the price of a sandwich is $1 and the price of a soft drinks is $3. Given these prices and given the initial allocations, do vou thin
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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I need help with a and b
Transcribed Image Text:3. John has 1 liter of soft drinks and 6 sandwiches. Tina, on the other hand, has 6
liters of soft drinks and 2 sandwiches. With these endowments, John's marginal
rate of substitution (MRS) of soft drinks for sandwiches is 2 and Tina’s (MRS) of
soft drinks for sandwiches is equal to 1/3.
a) Is this allocation of resources efficient? Explain.
b) Now suppose that there is a large number of Johns and a large number of
Tinas and suppose that the price of a sandwich is $1 and the price of a soft
drinks is $3. Given these prices and given the initial allocations, do you think
equilibrium? How might the competitive
that the competitive market
market lead to an equilibrium? Explain.
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