Discussion
Suppose Anil and Sunil are at an allocation bundle where their marginal rates of substitution are not equal, then ............... .
Answer: B
If their marginal rates of substitution differ, there are gains from exchange.
In the Edgeworth box, the contract curve is the set of allocations where the two consumers' indifference curves are tangent, so their MRS are equal. If Anil values good X more highly in terms of Y than Sunil does, each can trade what he values less for what he values more, and both can move to higher indifference curves. Such mutually beneficial trade remains possible until the MRS are equal.
So the allocation is not an equilibrium (D), and trade would bring gains, not losses (A). Any allocation of the two goods between them lies inside the box, so C is wrong.
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