Can consumption efficiency be achieved even if the efficient product mix is not achieved?
What will be an ideal response?
Efficiency in consumption implies that all consumers have the same MRS. This can be achieved with any product mix. Thus, consumers can be as well off as possible for any given product mix. If the product mix is inefficient, consumers can still make the best of it even though a different product mix could make them even better off.
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The price system works in an economy on a day-to-day basis to match the desires of consumers with the output from producers
Indicate whether the statement is true or false
Suppose country X currently does not produce widgets. Instead, it imports widgets from country Z. Then country X establishes a preferential trading agreement with country Y. Following the formation of the PTA, it imports widgets from country Y. What has occurred?
a. There is trade diversion and a welfare loss for country X. b. There is trade creation and a welfare loss for country Y. c. There is trade diversion and a welfare gain for country X. d. There is trade creation and a welfare gain for country Y.