Assume That Two Individuals, a and B, Are Willing to Trade

question 50

Essay

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):
MRS_XY^A = 0.80 (or equivalently, MRS_YX^A = 1.25).
Also, before a possible trade, B has these marginal rates of substitution of X for Y (or of Y for X):
MRS_XY^B = 1.50 (or equivalently, MRS_YX^B = 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.

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Definitions:

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