Question 1

What does the marginal rate of substitution have to do with efficient allocations?

Accepted Answer

In order for an allocation to be efficient, the indifference curves of the agents at the point of that allocation must be tangent to each other. To help understand why efficient trades require indifference curves that are tangent, remember that the slope of an agent's indifference curve at any point measures the marginal rate of substitution for that agent of goods 1 and 2. When the indifference curves for two agents are tangent, these marginal rates of substitution are equal for both agents. Now suppose that the marginal rates of substitution for two agents are not equal. Then the existing allocation cannot be efficient because we will be able to find another allocation that makes both agents better off or one agent better off and the other no worse off.

Question 2

A feasible allocation in which agents consume exactly the quantities of the goods that they initially possessed is called a no-trade allocation.

Accepted Answer

A) True 
 B)False  True

Question 3

A feasible allocation does not allocate more than the total amount of goods available in the economy.

Accepted Answer

A) True 
 B)False  True

Question 4

In the chapter on The Problem of Exchange, transfers of fruit between the two agents are made only through trades ________________ entered into by both parities.

Accepted Answer

A)  involuntarily 
B)  voluntarily 
C)  never 
A)  involuntarily 
B)  voluntarily 
C)  never

Question 5

To prevent a trade from occurring by forming a coalition and offering each person in the coalition more than they receive from the current proposed trade is to

Accepted Answer

A)  optimize 
B)  collude 
C)  block 
A)  optimize 
B)  collude 
C)  block

Question 6

If there are many equilibrium allocations, the agents will

Accepted Answer

A)  remain at the no-trade allocation 
B)  both voluntarily agree to trade to that allocation 
C)  agree on one of these allocations through a process of bargaining 
A)  remain at the no-trade allocation 
B)  both voluntarily agree to trade to that allocation 
C)  agree on one of these allocations through a process of bargaining

Question 7

-In Figure 21.4, point z is halfway on a line between the no-trade allocation at point f and the no-advantage allocation at point m. Yet point z has higher utility than the other two points. This is because of which assumption?

Accepted Answer

A)  selfishness 
B)  convex preferences 
C)  increasing returns to scale 
A)  selfishness 
B)  convex preferences 
C)  increasing returns to scale

Question 8

An allocation is a specification of the ___________ of each good to be ___________ by each agent in the economy.

Accepted Answer

A)  price, consumed 
B)  quantity, produced 
C)  quantity, consumed 
A)  price, consumed 
B)  quantity, produced 
C)  quantity, consumed

Question 9

In a primitive, two-person economy, the two agents can

Accepted Answer

A)  consume exactly what they pick 
B)  change the mix of fruit they have by trading with each other 
C)  Both answers are correct 
A)  consume exactly what they pick 
B)  change the mix of fruit they have by trading with each other 
C)  Both answers are correct

Question 10

When we add just one more agent of each type to an economy, the equilibrium of the trading process will now guarantee that traders of all types benefit in the sense of achieving final utility levels strictly _______________ the ones they could obtain if they remained at their no-trade allocations.

Accepted Answer

A)  equal to 
B)  greater than 
C)  less than 
A)  equal to 
B)  greater than 
C)  less than

Question 11

If there is an equilibrium allocation, the agents will

Accepted Answer

A)  remain at the no-trade allocation 
B)  both voluntarily agree to trade to that allocation 
C)  agree on one of the allocations through a process of bargaining 
A)  remain at the no-trade allocation 
B)  both voluntarily agree to trade to that allocation 
C)  agree on one of the allocations through a process of bargaining

Question 12

An allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading is known as an equilibrium allocation.

Accepted Answer

A) True 
 B)False

Question 13

The competitive equilibrium allocation is the allocation of goods

Accepted Answer

A)  that does not allocate more than the total amount of goods available in the economy 
B)  in which agents consume exactly the quantities of the goods that the agents initially possessed 
C)  determined by a competitive equilibrium 
A)  that does not allocate more than the total amount of goods available in the economy 
B)  in which agents consume exactly the quantities of the goods that the agents initially possessed 
C)  determined by a competitive equilibrium

Question 14

Another name for an efficient allocation is a(n0

Accepted Answer

A)  Pareto-optimal allocation 
B)  Edgeworth-optimal allocation 
C)  Nash-optimal allocation 
A)  Pareto-optimal allocation 
B)  Edgeworth-optimal allocation 
C)  Nash-optimal allocation

Question 15

Describe what happens when the number of agents in an economy approaches infinity.

Accepted Answer

When the number of agents in the economy

Question 16

Imagine you have an identical twin. You and your sibling are negotiating a trade with a pair of identical twins who are not related to you. The other twins are trying to force you into a trade that would leave you indifferent to your no-trade allocation. You and you sibling

Accepted Answer

A)  have to accept the trade because there is nothing you can do 
B)  can try to play one of the other twins off against the other to achieve a better allocation 
C)  should accept the offer because the other twins could force you into an even worse trade 
A)  have to accept the trade because there is nothing you can do 
B)  can try to play one of the other twins off against the other to achieve a better allocation 
C)  should accept the offer because the other twins could force you into an even worse trade

Question 17

When the number of agents in the economy approaches infinity, ________________ of allocation remain(s) in the core.

Accepted Answer

A)  infinitely many types 
B)  only one type 
C)  exactly two types 
A)  infinitely many types 
B)  only one type 
C)  exactly two types

Question 18

An Edgeworth box represents an allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading.

Accepted Answer

A) True 
 B)False

Question 19

Competitive behavior is price-

Accepted Answer

A)  taking behavior 
B)  making behavior 
C)  faking behavior 
A)  taking behavior 
B)  making behavior 
C)  faking behavior

Question 20

Trades that lead to excess demand or excess supply are not

Accepted Answer

A)  feasible trades 
B)  unblocked trades 
C)  equilibrium trades 
A)  feasible trades 
B)  unblocked trades 
C)  equilibrium trades

Exam 21: The Problem of Exchange

What does the marginal rate of substitution have to do with efficient allocations?

A feasible allocation in which agents consume exactly the quantities of the goods that they initially possessed is called a no-trade allocation.

A feasible allocation does not allocate more than the total amount of goods available in the economy.

In the chapter on The Problem of Exchange, transfers of fruit between the two agents are made only through trades ________________ entered into by both parities.

To prevent a trade from occurring by forming a coalition and offering each person in the coalition more than they receive from the current proposed trade is to

If there are many equilibrium allocations, the agents will

-In Figure 21.4, point z is halfway on a line between the no-trade allocation at point f and the no-advantage allocation at point m. Yet point z has higher utility than the other two points. This is because of which assumption?

An allocation is a specification of the ___________ of each good to be ___________ by each agent in the economy.

In a primitive, two-person economy, the two agents can

When we add just one more agent of each type to an economy, the equilibrium of the trading process will now guarantee that traders of all types benefit in the sense of achieving final utility levels strictly _______________ the ones they could obtain if they remained at their no-trade allocations.

If there is an equilibrium allocation, the agents will

An allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading is known as an equilibrium allocation.

The competitive equilibrium allocation is the allocation of goods

Another name for an efficient allocation is a(n0

Describe what happens when the number of agents in an economy approaches infinity.

Imagine you have an identical twin. You and your sibling are negotiating a trade with a pair of identical twins who are not related to you. The other twins are trying to force you into a trade that would leave you indifferent to your no-trade allocation. You and you sibling

When the number of agents in the economy approaches infinity, ________________ of allocation remain(s) in the core.

An Edgeworth box represents an allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading.

Competitive behavior is price-

Trades that lead to excess demand or excess supply are not

Economics and Institutions: a Shift of Emphasis

Consumers and Their Preferences

Utilities Indifference Curves

Demand and Behavior in Markets

Some Applications of Consumer Demand, and Welfare Analysis

Uncertainty and the Emergence of Insurance

Uncertainty Applications and Criticisms

The Discovery of Production and Its Technology

Cost and Choice

Cost Curves

Game Theory and the Tools of Strategic Business Analysis

Decision Making Over Time

The Internal Organization of the Firm

Perfectly Competitive Markets: Short-Run Analysis

Competitive Markets in the Long Run

Market Institutions and Auctions

The Age of Entrepreneurship: Monopoly

Natural Monopoly and the Economics of Regulation

The World of Oligopoly: Preliminaries to Successful Entry

Market Entry and the Emergence of Perfect Competition

General Equilibrium and the Origins of the Free Market and Interventionist Ideologies

Moral Hazard and Adverse Selection: Informational Market Failures

Externalities: the Free Market Interventionist Battle Continues

Public Goods, the Consequences of Strategic Voting Behavior, and the Role of Government

Input Markets and the Origins of Class Conflict

Filters

An allocation is a specification of the _ of each good to be _ by each agent in the economy.