# Efficiency requires that no more trades can be made between people, or equivalently, that their marginal rates of substitution (MRS) be equal for all goods they consume. Yet you and I never trade anything between each other, so how and when can we be sure we have equal MRS's?

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Efficiency requires that no more trades can be made between people, or equivalently, that their marginal rates of substitution (MRS) be equal for all goods they consume. Yet you and I never trade anything between each other, so how and when can we be sure we have equal MRS's?

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Step 1

The Marginal Rate of Substitution (MRS) is the rate at which the consumer is willing to trade one commodity to gain the other commodity. This point will be indicated on the indifference curve of the consumer. This tradeoff will take place when the consumer can maintain the same le...

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