1
Q
When is an exhange economy efficient?
A
When MRSxy = px/py (-px/py is the slope)
2
Q
What is consumption efficiency?
A
All points on the contract curve
3
Q
What are the three conditions for Pareto efficiency in the production and exchange economy?
A
1) Exchange efficiency = MRSxy = px/py
2) Production efficiency = MRTSlk = w/r
3) Allocative efficiency = MRSxy = MRTxy
All combined give us px/py = MCx/MCy
Intermediate Microeconomics
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