Exam 15: General Equilibrium

(Figure: Pancakes and Cereal I) Suppose the economy is achieving output efficiency at point I, where the marginal rate of transformation (MRT) is 1/4 and the marginal product of labor in the cereal industry is 12. Which of the following statements is TRUE?

Consider a society with three people whose utilities are U_A = 40, U_B = 90, and U_C = 60. What is the value of the Rawlsian utility function?

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. Would the new number of exams be a Pareto improvement?

The market for coffee is characterized by and , where Q_C is the quantity of coffee in hundreds of pounds, P_C is the price per hundred pounds of coffee, and P_T is the price per hundred pounds of tea. The market for tea is characterized by And , where Q_T is the quantity of tea in hundreds of pounds. In general equilibrium, the equilibrium quantity of coffee is ____ pounds.

(Figure: Cereal and Pancakes IV) What is the name of curve A, and what is its significance?

(Figure: Pancakes and Cereal I) Suppose that the economy is operating at point G. In the cereal industry, the marginal product of labor and capital are 10 and 4, respectively. What is the marginal rate of technical substitution of labor for capital in the pancake industry?

(Figure: Cereal and Pancakes II) Suppose that Elaina has 6 pancakes and 5 bowls of cereal and Jose has 2 pancakes and 5 bowls of cereal. Which of the following allocations would be a Pareto improvement? Elaina has _____ pancakes and _____ bowls of cereal, and Jose has _____ pancakes and _____ bowls of cereal.

(Figure: Clothing and Food I) Suppose the food industry is using 3 capital inputs and 5 labor inputs, while the clothing industry is using 2 capital inputs and 3 labor inputs. The economy's output of food is _____ units and the output of clothing is _____ units.

(Figure: Clothing and Food I) Suppose the food industry is using 4 capital inputs and 4 labor inputs, while the clothing industry is using 1 capital input and 4 labor inputs. It would be a Pareto improvement if the _____ industry gave _____ capital input(s) to the _____ industry in exchange for _____ labor input(s).

What are the general equilibrium effects between labor markets and housing markets following an increase in labor demand?

The market for soybeans is characterized by = 18 - P_s and = P_s - 0.5P_c, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 18 - P_c and = P_{c -} 0.5P_s, where Q_c is the quantity of corn in millions of bushels. In general equilibrium, the equilibrium quantity of corn is _____ bushels and that of soybeans is _____ bushels.

Anika, Pari, Amy, and Anna are college roommates living off campus. All four of them have a utility function given by U = Y^0.5, where Y is income per day. Suppose that Anika earns $8 per day, Pari earns $81, Amy earns $49, and Anna earns $16. What happens to the value of the Rawlsian social welfare function if $17 is taken from Pari and given to Anika?

(Figure: Crumpets and Tea I) Which of the following allocations represents a Pareto improvement from point A? I. Lucia consumes 3 cups of tea and 3 crumpets, and Mateo consumes 3 cups of tea and 4 crumpets. II) Lucia consumes 3 cups of tea and 4 crumpets, and Mateo consumes 3 cups of tea and 3 crumpets. III) Lucia consumes 2 cups of tea and 4 crumpets, and Mateo consumes 4 cups of tea and 3 crumpets.

May and Noon both like My Little Pony toys and Matchbox cars. What is the value of each child's marginal rate of substitution at point A? Explain whether that point is or is not a Pareto-efficient outcome.

The market for coffee is characterized by and , where Q_C is the quantity of coffee in hundreds of pounds, P_C is the price per hundred pounds of coffee, and P_T is the price per hundred pounds of tea. The market for tea is characterized by And , where Q_T is the quantity of tea in hundreds of pounds. Suppose a new medical study touts the benefits of drinking coffee, leading to an increase of 30 pounds of coffee at every price. The new equilibrium price of tea is ____.

Maximilian rules over a three-person society. The three people are Andre, Bojan, and Soumendra. Andre has a utility level of 60, Bojan's utility level is 80, and Soumendra's utility level is 10. If Maximilian transferred 20 units of utility from Bojan to Soumendra, the value of the Rawlsian social welfare function would be ____.

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases. a. Using partial equilibrium analysis, predict what happens to the equilibrium price and quantity of almonds. b. Using general equilibrium analysis, explain how the feedback between the markets affects the almond market. Does general equilibrium analysis predict a larger or smaller effect on the equilibrium price and quantity of almonds than partial equilibrium analysis?

In a small economy that produces smart phones and laptops, the marginal cost of a smart phone is $60 and the marginal cost of a laptop is $150. Assuming the economy is achieving output efficiency, the marginal rate of substitution of smart phones to laptops is ____.

Two legendary rock bands, The Who and Kiss, are scheduling concerts in Detroit this summer. The supply of tickets for The Who concert is fixed at 40,000 and the supply of tickets for the Kiss concert is fixed at 40,000. The demand for tickets for The Who and Kiss are given by the following equations: The Who: = 100,000 - 1,000P_W + 250P_K Kiss: = 100,000 - 1,000P_K + 250P_W Where P_W is the price of a ticket for The Who and P_K is the price of a ticket for Kiss. In general equilibrium, the price of a Kiss ticket is ____.

(Figure: Cereal and Pancakes I) The market prices for cereal and pancakes are $2 and $1, respectively. Pareto efficiency requires that the marginal rate of substitution of cereal for pancakes equal _____ for Elaina and _____ for Jose.