Question 1

Which of the following is true about exchange economies?

Accepted Answer

A) All core allocations are efficient. 
B) In 2-person exchange economies, the core is equal to the set of efficient allocations that is also mutually beneficial relative to initial endowments. 
C) In n-person exchange economies (with n>2), the core is smaller than the set of efficient allocations that is also mutually beneficial relative to initial endowments. 
D) (a) and (b) are true. 
E) (a) and (c) are true.
F)(b) and (c) are true.
G)All of the above are true.
H)None of the above are true. 
A) All core allocations are efficient. 
B) In 2-person exchange economies, the core is equal to the set of efficient allocations that is also mutually beneficial relative to initial endowments. 
C) In n-person exchange economies (with n>2), the core is smaller than the set of efficient allocations that is also mutually beneficial relative to initial endowments. 
D) (a) and (b) are true. 
E) (a) and (c) are true.
F)(b) and (c) are true.
G)All of the above are true.
H)None of the above are true. G

Question 2

A "pure exchange economy" is one in which producers and consumers are evenly divided.

Accepted Answer

A) True 
 B)False  False

Question 3

In the Edgeworth Box, we can set one price to 1 and only need to solve for the other price because only relative prices matter for individual choice when income is drawn from endowments.

Accepted Answer

A) True 
 B)False  True

Question 4

Consider an Edgeworth Box economy with two individuals and two goods and suppose that the tastes of both individuals are quasilinear in good 1.
a.Suppose initially that individual 1 has relatively little endowment of both good but the competitive equilibrium allocation has him consuming some of each.Illustrate such a competitive equilibrium.
b.Now suppose the government is able to redistribute the endowment in this economy (prior to any trade occurring).In order to achieve a more equitable outcome, the government redistributes some of good 1 from individual 2 to individual 1.Show such a redistribution in your Edgeworth Box.
c.Assume that both individuals continue to consume at an interior solution in the new equilibrium.How will the two individuals' consumption of good 1 change from what it would have been without the redistribution?
d.Would your answer to (c) differ in any way if the government had instead redistributed good 2 from individual 2 to individual 1?
e.How would a sufficiently large redistribution alter your answer?

Accepted Answer

a. @#IMG-DLM& b. @#IMG-DLM& c. Consumption of good 1 would c

Question 5

Suppose we live in an exchange economy with two goods.Together, we own 300 of good 1 and 300 of good 2.My tastes are captured by the utility function   and yours are captured by the utility function   . 
a.Calculate the portion of the contract curve that lies in the interior of the Edgeworth Box.
b.Can you make intuitive sense of your answer?

Accepted Answer

a. My MRS is @#IMG-DLM& and yours is @#IMG-DLM& . Since your

Question 6

If all goods are essential for everyone, efficiency requires that everyone get at least some of each good.

Accepted Answer

A) True 
 B)False

Question 7

Any efficient allocation has to be such that everyone would agree to switch to that allocation from the endowment allocation -- or at least no one would object to such a switch.

Accepted Answer

A) True 
 B)False

Question 8

If the production technology in a Robinson Crusoe economy has increasing returns to scale, there is not competitive equilibrium.

Accepted Answer

A) True 
 B)False

Question 9

If the two goods in an Edgeworth Box are perfect complements for both people, all efficient allocations will have each person getting the same amount of good 1 as of good 2.

Accepted Answer

A) True 
 B)False

Question 10

A proof by contradiction can only be used to disprove a statement but not to prove a statement to be correct.

Accepted Answer

A) True 
 B)False

Question 11

Comment on the following: "The second welfare theorem says that we can get any efficient allocation to be an equilibrium allocation.If endowments are inequitably distributed in an economy, we can therefore redistribute among people and still get an efficient outcome.As a result, there is no policy trade-off between equity and efficiency."

Accepted Answer

The statement accurately summarizes the

Question 12

If the production technology in a Robinson Crusoe economy has increasing returns to scale, there is no production/consumption plan that is efficient.

Accepted Answer

A) True 
 B)False

Question 13

The second welfare theorem says that, regardless of how we redistribute endowments in an economy, we still get the same competitive equilibrium if markets are permitted to operate.

Accepted Answer

A) True 
 B)False

Question 14

Suppose we live in a 2-good Edgeworth Box economy and both of us have tastes that are quasilinear in good 1.
a.Illustrate one efficient allocation in the Edgeworth Box.
b.Where do the other efficient allocations that lie in the interior of the Edgeworth Box lie?
c.It is typically the case that the contract curve goes from one corner of the Edgeworth Box to the other.Is that the case here as well?

Accepted Answer

The set of efficient

Question 15

If good 1 is essential for one person but not for the other, the first person will end up with all of good 1 in a competitive equilibrium within the Edgeworth Box.

Accepted Answer

A) True 
 B)False

Question 16

Any allocation resulting from a mutually beneficial trade is efficient.

Accepted Answer

A) True 
 B)False

Question 17

If the two individuals' indifference curves through their endowment bundles are tangent to one another at the endowment bundle (in the Edgeworth Box), then the endowment bundle is a competitive equilibrium allocation.

Accepted Answer

A) True 
 B)False

Question 18

If the two goods in an Edgeworth Box are perfect complements for one person and perfect substitutes for the other, then all efficient allocations are such that the first person has the same amount of good 1 as of good 2.

Accepted Answer

A) True 
 B)False

Question 19

In and Edgeworth Box economy, no one strictly prefers the endowment allocation to the competitive equilibrium allocation.

Accepted Answer

A) True 
 B)False

Question 20

If the endowment allocation in an Edgeworth Box is efficient, then this allocation is also the competitive equilibrium allocation.

Accepted Answer

A) True 
 B)False

Exam 16: General Equilibrium

Which of the following is true about exchange economies?

A "pure exchange economy" is one in which producers and consumers are evenly divided.

In the Edgeworth Box, we can set one price to 1 and only need to solve for the other price because only relative prices matter for individual choice when income is drawn from endowments.

If all goods are essential for everyone, efficiency requires that everyone get at least some of each good.

Any efficient allocation has to be such that everyone would agree to switch to that allocation from the endowment allocation -- or at least no one would object to such a switch.

If the production technology in a Robinson Crusoe economy has increasing returns to scale, there is not competitive equilibrium.

If the two goods in an Edgeworth Box are perfect complements for both people, all efficient allocations will have each person getting the same amount of good 1 as of good 2.

A proof by contradiction can only be used to disprove a statement but not to prove a statement to be correct.

If the production technology in a Robinson Crusoe economy has increasing returns to scale, there is no production/consumption plan that is efficient.

The second welfare theorem says that, regardless of how we redistribute endowments in an economy, we still get the same competitive equilibrium if markets are permitted to operate.

If good 1 is essential for one person but not for the other, the first person will end up with all of good 1 in a competitive equilibrium within the Edgeworth Box.

Any allocation resulting from a mutually beneficial trade is efficient.

If the two individuals' indifference curves through their endowment bundles are tangent to one another at the endowment bundle (in the Edgeworth Box), then the endowment bundle is a competitive equilibrium allocation.

If the two goods in an Edgeworth Box are perfect complements for one person and perfect substitutes for the other, then all efficient allocations are such that the first person has the same amount of good 1 as of good 2.

In and Edgeworth Box economy, no one strictly prefers the endowment allocation to the competitive equilibrium allocation.

If the endowment allocation in an Edgeworth Box is efficient, then this allocation is also the competitive equilibrium allocation.

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Production Decisions in the Short and Long Run

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

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