<p>That statement is a summary of what is explained in detail on pages 85-86. Basically, if you have two goods and exogenously given prices and everybody optimizes, then (assuming interior solutions for everyone's optimal bundle) everyone has MRS = price ratio. Since the price ratio is the same for everybody, the MRS must be the same for everybody.</p>

CC BY-SA 4.0
2020-01-29T17:14:38.523Z
2020-01-29T17:14:38.523Z
VARulle
<p>Suppose we're both price-takers in the market, so prices are fixed with respect to our actions.  This implies that there is enough of each good for us to trade until we are indifferent to further trading (which, as utility-maximizers, we will do by definition).  Each of us will sell one good and buy another until our private MRS is equal to the slope of our budget line - which is just the ratio of prices between the two goods.  Since we both face the same prices, it follows that we will both stop trading at the same private MRS value.  This holds even if we have different preferences, so long as those preferences are mathematically well-behaved.</p>

CC BY-SA 4.0
2019-11-11T21:15:45.817Z
2019-11-11T21:15:45.817Z
heh
<p>There are a couple of assumptions driving this result. For instance, all agents are assumed to have preferences and a budget such that their optimal bundle is interior. For example, budget constraints were people cannot afford food are ruled out. Likewise, situations, where someone does not like one of these goods or has very strong substitutions patterns between a pair of goods, are also ruled out.  All preferences are assumed well-behaved (monotonic and strictly convex). </p>

<p>Secondly, the market is competitive, so all people face the same prices not only for tomatoes but also for airplanes, wages, etc. This almost never happens in reality, but in some cases, it is a good approximation. For example, when considering shopping for breakfast, the relative prices between cereal and yogurt and eggs roughly reflect the willingness for every person to substitute one good for another. </p>

<p>This is a striking result and I see it more of a theoretical benchmark whose main intuition is that prices contain a whole lot of information about how people are willing to substitute one good for another. When they don't, it is very interesting to understand why. </p>

CC BY-SA 4.0
2019-06-14T17:36:55.317Z
2019-06-14T17:36:55.317Z
Regio
<p>I'm currently reading <strong>Varian's Intermediate Microeconomics</strong> and what struck me, is this statement on page 89 of the 8th edition.</p>

<blockquote>
  <ol start="4">
  <li>If everyone faces the same prices for the two goods, then everyone will
  have the same marginal rate of substitution, and will thus be willing to
  trade off the two goods in the same way.</li>
  </ol>
</blockquote>

<p>I mean, I see the mathematics behind it, but it still seems kind of hard for me to grasp intuitively. Could someone provide me with examples or another explanation to clear things up ?</p>

<microeconomics><supply-and-demand><preferences>
Everyone has the same marginal rate of substitution
Christian Singer
# Everyone has the same marginal rate of substitution

(Asked by: username_0 on 2019-06-10)

I'm currently reading **Varian's Intermediate Microeconomics** and what struck me, is this statement on page 89 of the 8th edition.

> 4. If everyone faces the same prices for the two goods, then everyone will
>    have the same marginal rate of substitution, and will thus be willing to
>    trade off the two goods in the same way.

I mean, I see the mathematics behind it, but it still seems kind of hard for me to grasp intuitively. Could someone provide me with examples or another explanation to clear things up ?

**Tags:** microeconomics, supply-and-demand, preferences


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## 3 answers

### Answer by username_3 on 2019-06-14. Score: 3 | Accepted answer

There are a couple of assumptions driving this result. For instance, all agents are assumed to have preferences and a budget such that their optimal bundle is interior. For example, budget constraints were people cannot afford food are ruled out. Likewise, situations, where someone does not like one of these goods or has very strong substitutions patterns between a pair of goods, are also ruled out. All preferences are assumed well-behaved (monotonic and strictly convex).

Secondly, the market is competitive, so all people face the same prices not only for tomatoes but also for airplanes, wages, etc. This almost never happens in reality, but in some cases, it is a good approximation. For example, when considering shopping for breakfast, the relative prices between cereal and yogurt and eggs roughly reflect the willingness for every person to substitute one good for another.

This is a striking result and I see it more of a theoretical benchmark whose main intuition is that prices contain a whole lot of information about how people are willing to substitute one good for another. When they don't, it is very interesting to understand why.


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### Answer by username_1 on 2020-01-29. Score: 1

That statement is a summary of what is explained in detail on pages 85-86. Basically, if you have two goods and exogenously given prices and everybody optimizes, then (assuming interior solutions for everyone's optimal bundle) everyone has MRS = price ratio. Since the price ratio is the same for everybody, the MRS must be the same for everybody.


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### Answer by username_2 on 2019-11-11. Score: 1

Suppose we're both price-takers in the market, so prices are fixed with respect to our actions. This implies that there is enough of each good for us to trade until we are indifferent to further trading (which, as utility-maximizers, we will do by definition). Each of us will sell one good and buy another until our private MRS is equal to the slope of our budget line - which is just the ratio of prices between the two goods. Since we both face the same prices, it follows that we will both stop trading at the same private MRS value. This holds even if we have different preferences, so long as those preferences are mathematically well-behaved.


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