The Economic Rationale for the Efficiency Condition
In a model of production and choice between two goods, an allocation is considered efficient when the marginal rate of substitution (MRS) equals the marginal rate of transformation (MRT). Explain the economic reasoning behind this condition. In your answer, you must describe the implications of a situation where MRS > MRT and a situation where MRS < MRT, and explain why, in both of these cases, the existing allocation is not efficient.
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The Economic Rationale for the Efficiency Condition
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In an economic model involving production and consumption, if an allocation exists where an individual's marginal willingness to trade good A for good B is not equal to the marginal rate at which good A can be technologically converted into good B, it is impossible to find an alternative allocation that would make at least one person better off without making anyone worse off.