Explain why having different marginal rates of substitution is necessary for trade to occur
What will be an ideal response?
The marginal rate of substitution is the rate at which a person is willing to trade one good for another. If these rates are not equal for all people, trade can occur. With different marginal rates of substitution at least one person gains by trading. When the marginal rates of substitution are the same for everyone, everyone is willing to trade goods at the same rate, so no one can gain by trading.
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The Golden Rule capital—labor ratio is the level of the capital—labor ratio that, in the steady state,
A) maximizes output per worker. B) maximizes investment per worker. C) maximizes consumption per worker. D) maximizes capital per worker.
"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment
What will be an ideal response?