Which of the following are conditions for economic efficiency ? i. At all points along the contract…
All three conditions are required for economic efficiency in the standard interior case. Equal marginal rates of substitution give efficiency in exchange, and equal marginal…
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Which of the following are conditions for economic efficiency ?
i. At all points along the contract curve, the marginal rates of substitution between the two commodities are the same for both consumers.
ii. At all points along the contract curve, the marginal rate of technical substitution between land and labour are equal in the production of the two commodities.
iii. Marginal benefit to consumers of one good in terms of the other good will be exactly equal to the marginal cost of producing that good in terms of the other good.
Answer and explanation
Correct answer D
All three conditions are required for economic efficiency in the standard interior case. Equal marginal rates of substitution give efficiency in exchange, and equal marginal rates of technical substitution give efficiency in production. Equality between consumers' marginal valuation and the marginal cost of transforming one good into another gives efficiency in the product mix.
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Jammu & Kashmir and Ladakh SET (JKSET/LASET)