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Define market rate of exchange. |
Answer» SOLUTION :The rate at which market requires to sacrifice one commodity to gain an additional unit of another commodity is called market rate of exchange.  `MRE_(x_1,x_2)=("Change in Quantity of Good Sacrificed"(DeltaX_2))/("Change in Quantity of Good Gained"(DeltaX_1))` or, `MRE_(x_1,x_2)=("Gained"[P_1])/("Price of Good Sacrificed" [P_2])` This can be EXPLAINED with the HELP of the following diagram Let consumer.sMoney Income is 10 and Priceof commodity 1 is 2 and price of commodity 2 is 1. i.e., M = 10 , `P_1= 2 and P_2=1` . MRE is constant throughout because `P_1 and P_2`on the basis of which it is calculated are constant throughout. |
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