If Andys marginal rate of substitution of wine for food is 3, and Bobs marginal rate of substitution of wine for food is 1, there is room for mutually advantageous trade becausese

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    Andy is willing to trade 3 units of food for 1 unit of wine but now he only has to trade one for one.
     Andy would be willing to trade 3 units of food to obtain 1 unit of wine but Bob is willing to trade just 1 unit of food for 1 bottle of wine, so there is a chance for both of them to be better off with trade.
     Bob will get 3 units of food for every unit of wine he trades.
     Andy and Bob will be happier with a wider variety of goods consumed in their life.
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

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Andy would be willing to trade 3 units of food to obtain 1 unit of wine but Bob is willing to trade just 1 unit of food for 1 bottle of wine, so there is a chance for both of them to be better off with trade.
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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