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  • The Optimality Condition (MRS = MRT)

  • The Two Fundamental Properties of Pareto Efficiency

The First Property of Pareto Efficiency: MRS = MRT

The first fundamental property of a Pareto-efficient allocation is the equality of the Marginal Rate of Substitution (MRS) and the Marginal Rate of Transformation (MRT). When MRS equals MRT, it signifies that no further Pareto improvements can be made by altering the allocation, such as changing work hours. This condition also indicates that the total economic surplus from the interaction has been maximized and cannot be increased further.

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Introduction to Microeconomics Course

The Economy 2.0 Microeconomics @ CORE Econ

Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ

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