Question 1

For a given set of prices,two consumers choose bundles that are off the contract curve.In a competitive market,

Accepted Answer

A) prices will adjust until the consumers choose bundles that are on the contract curve. 
B) the indifference curves will shift back to the contract curve. 
C) the contract curve will shift to connect these bundles. 
D) no adjustments need to be made. 
A) prices will adjust until the consumers choose bundles that are on the contract curve. 
B) the indifference curves will shift back to the contract curve. 
C) the contract curve will shift to connect these bundles. 
D) no adjustments need to be made. A

Question 2

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 20 units of clothing but no food.Suppose each has the utility function U = F ∗ C.The price of clothing is always $1.If the price of food is $3,does a competitive equilibrium exist? If not,what will happen to the price of food?

Accepted Answer

The farmer will have $30.His budget line is 30 = 3F + C.His budget line is tangent to an indifference curve when C/F = 3.Substituting yields 30 = 6F or F = 5 and C = 15.The tailor's budget line is 20 = 3F + C.His budget line is tangent to an indifference curve when C/F = 3.Substituting yields 20 = 6F or F = 3.33 and C = 10.In total 8.33 units of food and 25 units of clothing are demanded.There is excess demand for clothing and excess supply of food.The price of food will fall.When the price of food is $2,both markets clear.

Question 3

A cake is to be shared by two people.Both desire the largest piece possible.One of the two will cut the cake.Under which of the following situations will the cutter adopt a Rawlsian social welfare function?

Accepted Answer

A) The person cutting the cake chooses the first piece. 
B) The person not cutting the cake chooses the first piece. 
C) The two individuals will bid for the right to cut the cake and choose first. 
D) The two individuals will toss a coin for the right to cut the cake and choose first. 
A) The person cutting the cake chooses the first piece. 
B) The person not cutting the cake chooses the first piece. 
C) The two individuals will bid for the right to cut the cake and choose first. 
D) The two individuals will toss a coin for the right to cut the cake and choose first. B

Question 4

Suppose there are only two goods - Food (F)and Shelter (S).The demand equations for these two goods depend on their prices,pF and pS as follows:
DF (pF,pS)= 10 - 2pF - pS
 DS (pF,pS)= 10 - pF - 2pS
The supply curves depend only on their own prices:
SF (pF)= pF
SS (pS)= 5pS
Determine the equilibrium price and quantity of these goods.

Accepted Answer

The two equations describing the equilib

Question 5

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

Accepted Answer

A) the MRS's are equal. 
B) the indifference curves are tangent. 
C) no mutual gains from trade exist. 
D) All of the above. 
A) the MRS's are equal. 
B) the indifference curves are tangent. 
C) no mutual gains from trade exist. 
D) All of the above.

Question 6

Suppose a society's PPF for food (F)and clothing (C)can be written as 25 = F2 + C2.If all consumers have the same endowment and the same utility function Ui = Fi ∗ Ci,what is the efficient product mix of food and clothing?

Accepted Answer

The marginal rate of substitution of foo

Question 7

A general-equilibrium analysis of the impact of a tax on the peanut butter market would include an investigation of the impacts in

Accepted Answer

A) the television market. 
B) the coffee market. 
C) the salsa market. 
D) the jelly market. 
A) the television market. 
B) the coffee market. 
C) the salsa market. 
D) the jelly market.

Question 8

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 40 units of clothing but no food.Suppose each has the utility function U = F1/2C1/2.If the price of clothing is always $1,and the food price is currently $3,then we can conclude

Accepted Answer

A) the market is at a competitive equilibrium. 
B) the price of food will drop towards a competitive equilibrium. 
C) the price of food will increase towards a competitive equilibrium. 
D) None of the above. 
A) the market is at a competitive equilibrium. 
B) the price of food will drop towards a competitive equilibrium. 
C) the price of food will increase towards a competitive equilibrium. 
D) None of the above.

Question 9

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a horizontal intercept of

Accepted Answer

A) 10. 
B) 20. 
C) 30. 
D) 50. 
A) 10. 
B) 20. 
C) 30. 
D) 50.

Question 10

Equity and efficiency can be achieved simultaneously through competition.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the corn-producing industry of the U.S.is a price taker in the world market and government puts a ban on imports.The corn industry also receives subsidy from the home government.Then

Accepted Answer

A) social welfare will increase if the ban on imports is removed. 
B) everyone will be better off if both ban on imports and subsidy are removed. 
C) social efficiency will be improved if both ban on imports and subsidy are removed. 
D) the deadweight loss is reduced if subsidy is removed. 
A) social welfare will increase if the ban on imports is removed. 
B) everyone will be better off if both ban on imports and subsidy are removed. 
C) social efficiency will be improved if both ban on imports and subsidy are removed. 
D) the deadweight loss is reduced if subsidy is removed.

Question 12

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.If production occurs at the kink on the joint production possibility frontier,

Accepted Answer

A) the U.S.will specialize in food and Canada will specialize in clothing. 
B) the U.S.will specialize in clothing and Canada will specialize in food. 
C) each country will devote half of its resources to each industry. 
D) joint output is minimized. 
A) the U.S.will specialize in food and Canada will specialize in clothing. 
B) the U.S.will specialize in clothing and Canada will specialize in food. 
C) each country will devote half of its resources to each industry. 
D) joint output is minimized.

Question 13

Employing a general-equilibrium approach,describe the effect of a new law that prohibits steel imports.

Accepted Answer

The initial effect is that the supply cu

Question 14

Consider a two-trader/two-good exchange economy in equilibrium.If the endowment point moves to the north east,i.e.the endowment quantities to one of the consumers increase,can we determine the direction in which the equilibrium quantities will change? Demonstrate your answer with a graph including the relevant indifference curves,contract curve and price line.

Accepted Answer

Yes
,as the endowment quantiti

Question 15

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a vertical intercept of

Accepted Answer

A) 10. 
B) 20. 
C) 30. 
D) 50. 
A) 10. 
B) 20. 
C) 30. 
D) 50.

Question 16

-The above figure shows a production possibility frontier for a society with two members,Al and Bruce.If point "a" is the efficient product mix,draw a possible Edgeworth box and indifference curves.

Accepted Answer

The Edgeworth box has 0,0 as t

Question 17

A general-equilibrium analysis of a price change in the corn chip market would include an investigation of the impacts in

Accepted Answer

A) the television market. 
B) the coffee market. 
C) the salsa market. 
D) All of the above. 
A) the television market. 
B) the coffee market. 
C) the salsa market. 
D) All of the above.

Question 18

Suppose in a democratic society,all voters prefer choice G over choice B;however,when the two choices are presented along with a third choice,R,B wins the election.This violates the assumption of

Accepted Answer

A) transitivity. 
B) non-dictatorship. 
C) independence of irrelevant alternatives. 
D) completeness. 
A) transitivity. 
B) non-dictatorship. 
C) independence of irrelevant alternatives. 
D) completeness.

Question 19

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Once free trade is allowed,Canada will produce

Accepted Answer

A) no clothing. 
B) 10 units of clothing. 
C) 20 units of clothing. 
D) 5 units of clothing. 
A) no clothing. 
B) 10 units of clothing. 
C) 20 units of clothing. 
D) 5 units of clothing.

Question 20

Gains from trade will be possible as long as

Accepted Answer

A) people have different endowments. 
B) people place different values on some goods. 
C) marginal rates of substitution are equal across individuals. 
D) excess supply equals excess demand. 
A) people have different endowments. 
B) people place different values on some goods. 
C) marginal rates of substitution are equal across individuals. 
D) excess supply equals excess demand.

For a given set of prices,two consumers choose bundles that are off the contract curve.In a competitive market,

A cake is to be shared by two people.Both desire the largest piece possible.One of the two will cut the cake.Under which of the following situations will the cutter adopt a Rawlsian social welfare function?

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

Suppose a society's PPF for food (F)and clothing (C)can be written as 25 = F²+ C².If all consumers have the same endowment and the same utility function U_i = F_i ∗ C_i,what is the efficient product mix of food and clothing?

A general-equilibrium analysis of the impact of a tax on the peanut butter market would include an investigation of the impacts in

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a horizontal intercept of

Equity and efficiency can be achieved simultaneously through competition.

Suppose the corn-producing industry of the U.S.is a price taker in the world market and government puts a ban on imports.The corn industry also receives subsidy from the home government.Then

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.If production occurs at the kink on the joint production possibility frontier,

Employing a general-equilibrium approach,describe the effect of a new law that prohibits steel imports.

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a vertical intercept of

-The above figure shows a production possibility frontier for a society with two members,Al and Bruce.If point "a" is the efficient product mix,draw a possible Edgeworth box and indifference curves.

A general-equilibrium analysis of a price change in the corn chip market would include an investigation of the impacts in

Suppose in a democratic society,all voters prefer choice G over choice B;however,when the two choices are presented along with a third choice,R,B wins the election.This violates the assumption of

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Once free trade is allowed,Canada will produce

Gains from trade will be possible as long as

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 10: General Equilibrium and Economic Welfare

For a given set of prices,two consumers choose bundles that are off the contract curve.In a competitive market,

A cake is to be shared by two people.Both desire the largest piece possible.One of the two will cut the cake.Under which of the following situations will the cutter adopt a Rawlsian social welfare function?

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

Suppose a society's PPF for food (F)and clothing (C)can be written as 25 = F2 + C2.If all consumers have the same endowment and the same utility function Ui = Fi ∗ Ci,what is the efficient product mix of food and clothing?

A general-equilibrium analysis of the impact of a tax on the peanut butter market would include an investigation of the impacts in

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a horizontal intercept of

Equity and efficiency can be achieved simultaneously through competition.

Suppose the corn-producing industry of the U.S.is a price taker in the world market and government puts a ban on imports.The corn industry also receives subsidy from the home government.Then

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.If production occurs at the kink on the joint production possibility frontier,

Employing a general-equilibrium approach,describe the effect of a new law that prohibits steel imports.

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier has a vertical intercept of

-The above figure shows a production possibility frontier for a society with two members,Al and Bruce.If point "a" is the efficient product mix,draw a possible Edgeworth box and indifference curves.

A general-equilibrium analysis of a price change in the corn chip market would include an investigation of the impacts in

Suppose in a democratic society,all voters prefer choice G over choice B;however,when the two choices are presented along with a third choice,R,B wins the election.This violates the assumption of

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Once free trade is allowed,Canada will produce

Gains from trade will be possible as long as

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose a society's PPF for food (F)and clothing (C)can be written as 25 = F²+ C².If all consumers have the same endowment and the same utility function U_i = F_i ∗ C_i,what is the efficient product mix of food and clothing?