Two Goods Are Said to Be Allocated Efficiently Between Consumers

question 23

Multiple Choice

Two goods are said to be allocated efficiently between consumers when _____.

• A)both goods give the consumers the same total utility
• B)there are no trades that will make one of the consumers strictly worse off
• C)one consumer is as well off as possible,given the utility of the other consumer
• D)both the consumers are maximizing utility

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Definitions:

Ordinary Goods

In a consumer’s utility function, those for which additional units of one good are required to compensate for fewer units of another, and vice versa; and for which the consumer experiences a diminishing marginal rate of substitution when substituting one good in place of another.

Marginal Rate

The rate at which one variable changes over the change in another variable, often used in the context of taxes or marginal rate of substitution in economics.

Substitution

The economic concept whereby consumers replace costlier items with less expensive alternatives, or firms switch between inputs to minimize costs.

Indifference Curves

A graph showing different bundles of goods between which a consumer is indifferent, representing equal levels of utility.