Question 1

What is TRUE about every point along a utilities possibilities frontier?

Accepted Answer

A)  Markets are perfectly competitive. 
B)  It is possible to move to from one point on the frontier to another point and make everyone better off. 
C)  All allocations are efficient. 
D)  It includes some unattainable points. 
A)  Markets are perfectly competitive. 
B)  It is possible to move to from one point on the frontier to another point and make everyone better off. 
C)  All allocations are efficient. 
D)  It includes some unattainable points. C

Question 2

Figure 16.2.2
-To be certain that exchange between people is mutually beneficial, we generally assume

Accepted Answer

A)  not all people are free to enter the market at will, but once in they are free to make any offer to trade. 
B)  all people have complete information about each other's preferences. 
C)  there are no transaction costs. 
D)  both B and C 
E)  both A and B 
A)  not all people are free to enter the market at will, but once in they are free to make any offer to trade. 
B)  all people have complete information about each other's preferences. 
C)  there are no transaction costs. 
D)  both B and C 
E)  both A and B D

Question 3

Use the following statements to answer this question. I. A nation may have a comparative advantage in the production of a good without having an absolute advantage in the production of any goods.
II) A nation may have a comparative advantage in the production of two or more goods.

Accepted Answer

A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false. 
A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false. B

Question 4

Suppose a paper mill emits noxious odors that represent a negative externality for people living near the plant. If the plant managers ignore these external effects on their neighbors, what is the efficiency character of the resulting market outcome?

Accepted Answer

A)  The plant generates too much paper due to incomplete information. 
B)  The plant generates too much paper because the odors are nonexclusive. 
C)  The plant generates too much paper because the managers ignore the external costs of the air pollution on the neighbors. 
D)  The market outcome is efficient. 
A)  The plant generates too much paper due to incomplete information. 
B)  The plant generates too much paper because the odors are nonexclusive. 
C)  The plant generates too much paper because the managers ignore the external costs of the air pollution on the neighbors. 
D)  The market outcome is efficient.

Question 5

An economy produces outputs X and Y using inputs L and K. Which of the following is NOT required for economic efficiency?

Accepted Answer

A)  MRTSLK = MRSXY for all producers and consumers. 
B)  MRTXY = MRSXY for all producers and consumers. 
C)  MRSXY is equal for all consumers. 
D)  MRTSLK is equal for all producers. 
E)  None of the above. All of these are required for economic efficiency. 
A)  MRTSLK = MRSXY for all producers and consumers. 
B)  MRTXY = MRSXY for all producers and consumers. 
C)  MRSXY is equal for all consumers. 
D)  MRTSLK is equal for all producers. 
E)  None of the above. All of these are required for economic efficiency.

Question 6

The Rawlsian view of equity would lead to:

Accepted Answer

A)  equal allocations of goods across all persons. 
B)  maximizing the utility of the least-well-off person. 
C)  maximizing the total utility of all society members. 
D)  none of the above 
A)  equal allocations of goods across all persons. 
B)  maximizing the utility of the least-well-off person. 
C)  maximizing the total utility of all society members. 
D)  none of the above

Question 7

Figure 16.5.1
-Use the following statements to answer this question. I. There are potential gains from trade when the economies of two countries differ so that one country has an absolute advantage in producing one good, while the second country has an absolute advantage in producing another good.
II) A country has an absolute advantage in producing a good if its cost is lower than the cost in another country.

Accepted Answer

A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false. 
A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false.

Question 8

On the planet Economus, there are only two goods in the economy. One of the goods is econoapples. The quantity supplied of econoapples is fixed at 30. The second type of good is the econoseed. The quantity supplied of econoseeds is fixed at 60. The demand for econoapples is:   The demand for econoseeds is:   Determine the equilibrium price and quantity of each good in the Economus economy.

Accepted Answer

Market equilibrium for econoapples impli

Question 9

Scenario 16.3:
Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.
Sam tee shirts MU(tee shirts) Candy MU(Candy)
1 10 1 6
2 9 2 5
3 8 3 4
4 7 4 5
5 6 5 4
Sally tee shirts MU(tee shirts) Candy MU(Candy)
1 24 1 12
2 19 2 9
3 18 3 8
4 14 4 7
5 10 5 3
There are 7 candies and 7 tee shirts total in the economy.
Consider the case when the goods are redistributed such that Sam has 4 tee shirts and 4 candies. Sally has 3 tee shirts and 3 candies.
-Refer to Scenario 16.3. Is the current distribution Pareto optimal?

Accepted Answer

A)  Yes. 
B)  No, as Sam has more of both goods. 
C)  No, as it is possible to find a way for Sam to sell tee shirts to Sally (and receive candy in return) that would make both of them better off. 
D)  No, as it is possible to find a way for Sam to sell candy to Sally (and receive tee shirts in return) that would make both of them better off. 
E)  Without knowing the prices of tee shirts and candy we cannot determine if this distribution is Pareto optimal. 
A)  Yes. 
B)  No, as Sam has more of both goods. 
C)  No, as it is possible to find a way for Sam to sell tee shirts to Sally (and receive candy in return) that would make both of them better off. 
D)  No, as it is possible to find a way for Sam to sell candy to Sally (and receive tee shirts in return) that would make both of them better off. 
E)  Without knowing the prices of tee shirts and candy we cannot determine if this distribution is Pareto optimal.

Question 10

From a point within the utilities possibilities frontier,

Accepted Answer

A)  movement to another point within the frontier can only increase one person's utility, but not both people's utility. 
B)  it is possible to find another point within the frontier that generates higher utility for both people. 
C)  it is possible to find another point within the frontier that involves higher output of both goods. 
D)  any move to another point within the frontier will necessarily decrease someone's utility. 
A)  movement to another point within the frontier can only increase one person's utility, but not both people's utility. 
B)  it is possible to find another point within the frontier that generates higher utility for both people. 
C)  it is possible to find another point within the frontier that involves higher output of both goods. 
D)  any move to another point within the frontier will necessarily decrease someone's utility.

Question 11

Figure 16.2.2
-Refer to Figure 16.2.2 above. Which allocation is efficient?

Accepted Answer

A)  A and B 
B)  B and C 
C)  C and D 
D)  D only 
A)  A and B 
B)  B and C 
C)  C and D 
D)  D only

Question 12

Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joe's marginal utility of apples is 3, and his marginal utility of oranges is 5. Jane's marginal utility of apples is 6, and her marginal utility of oranges is 10. The current price of apples is $4 and the current price of oranges is $5. To reach a competitive equilibrium, the required price adjustment is:

Accepted Answer

A)  a decrease in the apple price relative to the orange price. 
B)  a decrease in the orange price relative to the apple price. 
C)  no change in the relative prices. 
D)  an increase in both prices. 
A)  a decrease in the apple price relative to the orange price. 
B)  a decrease in the orange price relative to the apple price. 
C)  no change in the relative prices. 
D)  an increase in both prices.

Question 13

Scenario 16.2:
Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.
Sam tee shirts MU(tee shirts) Candy MU(Candy)
1 10 1 6
2 9 2 5
3 8 3 4
4 7 4 5
5 6 5 4
Sally tee shirts MU(tee shirts) Candy MU(Candy)
1 24 1 12
2 19 2 9
3 18 3 8
4 14 4 7
5 10 5 3
There are 7 candies and 7 tee shirts total in the economy.
Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.
-Refer to Scenario 16.2. Is the current distribution Pareto optimal?

Accepted Answer

A)  Yes. 
B)  No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off. 
C)  No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off. 
D)  Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal. 
A)  Yes. 
B)  No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off. 
C)  No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off. 
D)  Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal.

Question 14

Inefficient outcomes can arise in markets for public goods because:

Accepted Answer

A)  too much of an exclusive good is produced. 
B)  too little of an exclusive good is produced. 
C)  too much of a nonexclusive good is produced. 
D)  too little of a nonexclusive good is produced. 
A)  too much of an exclusive good is produced. 
B)  too little of an exclusive good is produced. 
C)  too much of a nonexclusive good is produced. 
D)  too little of a nonexclusive good is produced.

Question 15

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:Table 16.1
Hours of Labor Required to Produce
  
-Refer to Table 16.1. Which of the following statements is correct?

Accepted Answer

A)  There are potential gains from trade if: (1) Mexico specializes in the production of tomatoes, (2) Guatemala specializes in the production of beer, and (3) Mexico trades tomatoes to Guatemala for beer. 
B)  There are potential gains from trade if: (1) Mexico specializes in the production of beer, (2) Guatemala specializes in the production of tomatoes, and (3) Mexico trades beer to Guatemala for tomatoes. 
C)  There are no potential gains from trade because Mexico has an absolute advantage in the production of beer and tomatoes. 
D)  There are no potential gains from trade because Guatemala has an absolute advantage in the production of beer and tomatoes. 
A)  There are potential gains from trade if: (1) Mexico specializes in the production of tomatoes, (2) Guatemala specializes in the production of beer, and (3) Mexico trades tomatoes to Guatemala for beer. 
B)  There are potential gains from trade if: (1) Mexico specializes in the production of beer, (2) Guatemala specializes in the production of tomatoes, and (3) Mexico trades beer to Guatemala for tomatoes. 
C)  There are no potential gains from trade because Mexico has an absolute advantage in the production of beer and tomatoes. 
D)  There are no potential gains from trade because Guatemala has an absolute advantage in the production of beer and tomatoes.

Question 16

A point lying beyond the utilities possibilities frontier is:

Accepted Answer

A)  unattainable. 
B)  efficient. 
C)  inefficient. 
D)  profitable. 
A)  unattainable. 
B)  efficient. 
C)  inefficient. 
D)  profitable.

Question 17

If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE?

Accepted Answer

A)  It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good. 
B)  It is possible to reallocate labor and capital across industries so as to increase the production of one good, but only by reducing the production of another good. 
C)  It is possible to reallocate labor and capital across industries so as to increase the production of every good. 
D)  none of the above 
A)  It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good. 
B)  It is possible to reallocate labor and capital across industries so as to increase the production of one good, but only by reducing the production of another good. 
C)  It is possible to reallocate labor and capital across industries so as to increase the production of every good. 
D)  none of the above

Question 18

Germany and France can produce the amounts of wine and beer indicated in the table below with one unit of land. Each country has 10 units of land. Does either country have an absolute advantage? Which country has a comparative advantage in beer production? Which country has a comparative advantage in wine production? Is it possible for the two countries to benefit from trade?

Accepted Answer

With 10 units of land, Germany can produ

Question 19

Scenario 16.2:
Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.
Sam tee shirts MU(tee shirts) Candy MU(Candy)
1 10 1 6
2 9 2 5
3 8 3 4
4 7 4 5
5 6 5 4
Sally tee shirts MU(tee shirts) Candy MU(Candy)
1 24 1 12
2 19 2 9
3 18 3 8
4 14 4 7
5 10 5 3
There are 7 candies and 7 tee shirts total in the economy.
Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.
-Refer to Scenario 16.2. What is Sally's marginal rate of substitution of tee shirts for candy at the current distribution?

Accepted Answer

A)  7/2 
B)  2 
C)  1/2 
D)  It is impossible to determine without the prices of each commodity. 
A)  7/2 
B)  2 
C)  1/2 
D)  It is impossible to determine without the prices of each commodity.

Question 20

Once a point on a contract curve has been chosen,

Accepted Answer

A)  it is possible to make both individuals better off. 
B)  it is possible to make one individual better off only at the expense of the other. 
C)  there is no change that would make both individuals worse off. 
D)  it is impossible for both individuals to have more of both goods. 
A)  it is possible to make both individuals better off. 
B)  it is possible to make one individual better off only at the expense of the other. 
C)  there is no change that would make both individuals worse off. 
D)  it is impossible for both individuals to have more of both goods.

What is TRUE about every point along a utilities possibilities frontier?

Figure 16.2.2 -To be certain that exchange between people is mutually beneficial, we generally assume

Use the following statements to answer this question. I. A nation may have a comparative advantage in the production of a good without having an absolute advantage in the production of any goods. II) A nation may have a comparative advantage in the production of two or more goods.

Suppose a paper mill emits noxious odors that represent a negative externality for people living near the plant. If the plant managers ignore these external effects on their neighbors, what is the efficiency character of the resulting market outcome?

An economy produces outputs X and Y using inputs L and K. Which of the following is NOT required for economic efficiency?

The Rawlsian view of equity would lead to:

From a point within the utilities possibilities frontier,

Figure 16.2.2 -Refer to Figure 16.2.2 above. Which allocation is efficient?

Inefficient outcomes can arise in markets for public goods because:

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:Table 16.1 Hours of Labor Required to Produce -Refer to Table 16.1. Which of the following statements is correct?

A point lying beyond the utilities possibilities frontier is:

If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE?

Once a point on a contract curve has been chosen,

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

Markets With Asymmetric Information

Externalities and Public Goods

Behavioral Economics

Filters

Exam 16: General Equilibrium and Economic Efficiency

What is TRUE about every point along a utilities possibilities frontier?

Figure 16.2.2 -To be certain that exchange between people is mutually beneficial, we generally assume

Use the following statements to answer this question. I. A nation may have a comparative advantage in the production of a good without having an absolute advantage in the production of any goods. II) A nation may have a comparative advantage in the production of two or more goods.

Suppose a paper mill emits noxious odors that represent a negative externality for people living near the plant. If the plant managers ignore these external effects on their neighbors, what is the efficiency character of the resulting market outcome?

An economy produces outputs X and Y using inputs L and K. Which of the following is NOT required for economic efficiency?

The Rawlsian view of equity would lead to:

From a point within the utilities possibilities frontier,

Figure 16.2.2 -Refer to Figure 16.2.2 above. Which allocation is efficient?

Inefficient outcomes can arise in markets for public goods because:

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:Table 16.1 Hours of Labor Required to Produce -Refer to Table 16.1. Which of the following statements is correct?

A point lying beyond the utilities possibilities frontier is:

If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE?

Once a point on a contract curve has been chosen,

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

Markets With Asymmetric Information

Externalities and Public Goods

Behavioral Economics

Filters