At an interior point, if MRS is bigger than the ratio of prices at a given point, for a consumer with strongly monotone preferences, then: Consumers with Cobb-Douglas preferences would benefit from...


At an interior point, if MRS is bigger than the ratio of prices at a given point, for a<br>consumer with strongly monotone preferences, then:<br>Consumers with Cobb-Douglas preferences would benefit from this scenario, but consumers<br>with perfectly substitutes preferences would not.<br>It is unclear whether a consumer has trades available that are beneficial to them.<br>A consumer can improve their utility level by trading units of y for units of x at the market<br>prices, which is beneficial once they give away less units of y to obtain one more unit of x,<br>than what is needed to remain at the same IC.<br>At this point the consumer has no incentives to trade away.<br>

Extracted text: At an interior point, if MRS is bigger than the ratio of prices at a given point, for a consumer with strongly monotone preferences, then: Consumers with Cobb-Douglas preferences would benefit from this scenario, but consumers with perfectly substitutes preferences would not. It is unclear whether a consumer has trades available that are beneficial to them. A consumer can improve their utility level by trading units of y for units of x at the market prices, which is beneficial once they give away less units of y to obtain one more unit of x, than what is needed to remain at the same IC. At this point the consumer has no incentives to trade away.

Jun 11, 2022
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