Inefficiency of Allocation N (MRS < MRT)
At allocation N, Angela's indifference curve is flatter while the feasible frontier is steeper, which means her Marginal Rate of Substitution (MRS) is less than the Marginal Rate of Transformation (MRT) at the corresponding point M on the frontier. This inequality signifies that her personal valuation of an additional hour of free time is lower than the amount of grain that could be produced in that hour. This specific condition (MRS < MRT) is the technical reason why allocation N is not Pareto efficient, opening the possibility for a mutually beneficial agreement.
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Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Learn After
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Figure 5.18 - Graphical Representation of Inefficiency at Allocation N (MRS < MRT)
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