Deck 5: Introduction to Neoclassical Trade Theory: Tools to Be Employed

Question 1

Given the following table showing various combinations of goods X and Y that bring equal satisfaction to an individual consumer:
$\begin{array} { l r } \text { good X } & \text { good Y } \\\hline 2 \text { units } & 10 \text { units } \\3 \text { units } & 9 \text { units } \\4 \text { units } & 6 \text { units } \\5 \text { units } & 2 \text { units }\end{array}$
In this table, as the individual consumes a greater amount of X, a __________ amount of good Y is given up for each additional unit of good X. This pattern suggests that, as more of good X is consumed and less of good Y is consumed, the ratio MU_X/MU_Y is __________.

A) larger; increasing, which contradicts economists' usual expectations
B) larger; decreasing, which conforms to economists' usual expectations
C) smaller; increasing, which contradicts economists' usual expectations
D) smaller; decreasing, which conforms to economists' usual expectations

Answer 1

larger; increasing, which contradicts economists' usual expectations

Question 2

The textbook has developed the Edgeworth box diagram and the concept of the production efficiency locus or contract curve in the context of the production of two goods with two factors. Apply the Edgeworth box apparatus to the context of consumption of two goods by two consumers, and, in particular, explain how welfare for the two consumers as a whole when on the contract curve relates to welfare when the consumers are not on the contract curve.

Answer 2

not answered

Question 3

"If constant returns to scale exist for a firm, then a 10 percent rise in all factor prices will lead to a 10 percent decline in the equilibrium quantity of output for a given budget. However, if increasing returns to scale exist, a 10 percent rise in all factor prices will lead to a less than 10 percent decline in the equilibrium quantity of output for a given budget."Assess the validity of this statement.

Answer 3

not answered

Question 4

In the following Edgeworth box diagram for a country's production,

A) point T has greater output of the A good than does point R.
B) output of the A good is greater at point S as at point R.
C) a plotting of the output combinations along the "diagonal" results in the production-Possibilities frontier for this country.
D) good A is the relatively labor-intensive good and good B is the relatively capital-Intensive good.

Question 5

In the Edgeworth box diagram for production,

A) a point off the "contract curve" (or "production efficiency locus") cannot have more Production of one of the goods than can some point on the curve.
B) a point off the "contract curve" (or "production efficiency locus") can involve more Production of both goods than can any point on the curve.
C) a movement from autarky to trade can be associated with a movement along the "contract curve" (or "production efficiency locus').
D) the "contract curve" (or "production efficiency locus") will always be the "diagonal"Of the box.

Question 6

Explain, using the isoquant-isocost diagram, why a rise in the rental rate of capital coupled with no change in the wage rate will lead to a rise in the price of the capital-intensive good relative to the price of the labor-intensive good.

Question 7

Explain why any point on an economy's PPF must be associated with a point on the production efficiency locus in the Edgeworth box diagram.

Question 8

In the following table of production possibilities for a country,
$\begin{array} { c c } \text { Good X } & \text { Good Y } \\\hline 0 \text { units } & 13 \text { units } \\1 \text { unit } & 10 \text { units } \\2 \text { units } & 6 \text { units } \\3 \text { units } & 0 \text { units }\end{array}$
There are __________ opportunity costs in the production of good X, and there are __________ opportunity costs in the production of good Y.

A) increasing; increasing
B) increasing; constant
C) constant; increasing
D) constant; decreasing

Question 9

Which one of the following sequences of specifications of relative preferences for bundles of goods A, B, and C by a consumer indicates the property of transitivity (where ">" indicates that the preferred bundle is on the left, "<" indicates that the preferred bundle is on the right, and "=" means indifference between the bundles)?

A) A > B; B > C; C > A
B) A > B; B = C; C = A
C) A < B; C < A; B > C
D) A = C; B > C; A > B

Question 10

Suppose that, in the isoquant-isocost diagram, with given relative factor prices, an Equilibrium input combination of 10 units of capital and 30 units of labor yields an output Level for the firm of 120 units. Suppose that, for this firm, at the same relative factor Prices but with a larger budget, an equilibrium input combination of 15 units of capital And 45 units of labor yields an output level of 160 units. Viewing these input-output Relationships, an economist would say that, in its production process, this firm Experiences

A) increasing returns to scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) increasing returns to scale, constant returns to scale, or decreasing returns to scale -Cannot be determined without more information.

Question 11

In the following graph showing an isoquant and an isocost line, at point X,

MPP_L/MPP_K is __________ w/r and the producer has an incentive to use relatively more__________ in producing the given output.

A) greater than; capital
B) greater than; labor
C) less than; capital
D) less than; labor

Question 12

In the diagram in Question #7 above, a movement from point S to point T will lead to __________ in the capital/labor ratio used in the production of good A and __________ In the capital/labor ratio used in the production of good B.

A) an increase; will lead to a decrease
B) an increase; also will lead to an increase
C) a decrease; also will lead to a decrease
D) a decrease; will lead to an increase

Question 13

Two indifference curves for an individual consumer __________ intersect; two Community indifference curves for a country __________.

A) cannot; also cannot intersect
B) cannot; can intersect under some circumstances
C) can; can also intersect under some circumstances
D) can; cannot intersect

Question 14

If, for a consumer, (MU_A/P_A) is greater than (MU_B/P_B), then the consumer

A) has an incentive to consume relatively more of good A, which will increase his/her MU_A.
B) has an incentive to consume relatively more of good A, which will decrease his/her MU_A.
C) has an incentive to consume relatively more of good B, which will increase his/her MU_B.
D) has an incentive to consume relatively more of good B, which will decrease his/her MU_B.

Question 15

A production isoquant shows the various combinations

A) of two factors of production that can produce the same amount of output of a good.
B) of two factors of production that can be hired by a firm for the same cost.
C) of two goods that can be produced by the firm with the same quantity of the factors of Production.
D) of two goods that bring an equivalent satisfaction level to an individual consumer.

Question 16

Suppose that, from an initial individual consumer equilibrium position in the indifference curve-budget line diagram, the price of good X rises while the price of good Y falls. What will happen to the relative consumption of the two goods by the consumer and why? Can it be specified whether the consumer's level of satisfaction has increased or decreased because of this change in absolute and relative prices? Why or why not? Could the satisfaction level of some consumers increase and the satisfaction level of other consumers decrease because of the price changes? Explain.

Question 17

The equilibrium condition for consumer behavior pertaining to goods A and B is __________.

A) (MU_B/P_A) = (MU_A/P_B)
B) MU_B = MU_A
C) (MPP_B/MPP_A) = (P_B/P_A)
D) (MU_B/MU_A) = (P_B/P_A)

Question 18

Suppose that, from an initial individual consumer equilibrium position in the indifference curve-budget line diagram, the prices of both goods rise by 10 percent. What happens to the position and slope of the budget line? Why does the consumer's level of satisfaction from a given money income fall? Illustrate and explain. Would it be acceptable for an economist to say that the level of satisfaction of the consumer fell by exactly 10 percent? Why or why not?

Question 19

In the following table of production possibilities for a country,
$\begin{array} { r r } \text { Good X } & \text { Good Y } \\\hline 400 \text { units } & 0 \text { units } \\300 \text { units } & 100 \text { units } \\200 \text { units } & 180 \text { units } \\100 \text { units } & 240 \text { units } \\0 \text { units } & 280 \text { units }\end{array}$
There are __________ opportunity costs when moving to greater production of good X And __________ when moving to greater production of good Y.

A) increasing; decreasing
B) decreasing; constant
C) constant; increasing
D) increasing; increasing

Question 20

In the diagram in Question #7 above,

A) a movement from point S to point T involves an increase in the capital/labor ratio used In the production of good A.
B) if the PPF is plotted from the "contract curve" (or "production efficiency locus"), the Production combination of goods A and B associated with point R is on the PPF.
C) if the PPF is plotted from the "contract curve" (or "production efficiency locus"), with Good A on the vertical axis and good B on the horizontal axis, the production Combination of goods A and B associated with the 0_B origin is at the origin of the PPF graph.
D) if the PPF is plotted from the "contract curve" (or "production efficiency locus"),With good A on the vertical axis and good B on the horizontal axis, the production Combination of goods A and B associated with point T is further up the vertical Axis than the production combination associated with point S.

Question 21

In the Edgeworth box diagram in production with two goods and two factors of production,

A) a movement from any point off the "production efficiency locus" ("contract curve") To any point on the locus must involve greater production of one good and less Production of the other good.
B) a movement from any point on the "production efficiency locus" ("contract curve") To any point off the locus must involve less production of both goods.
C) a point that is off the "production efficiency locus" ("contract curve") must be Associated with unemployment of at least one of the factors of production.
D) a movement from any point on the "production efficiency locus" ("contract curve") To another point on the locus must involve greater production of one good and Less production of the other good.

Question 22

Suppose that, in the context of the Edgeworth box diagram in production, there are Constant returns to scale in each of the two industries and that one good is relatively Labor-intensive in its production process and the other good is relatively capital-intensive In its production process. In considering this Edgeworth box diagram and the PPF that Can be derived from it,

A) all points on the "diagonal" of the Edgeworth box diagram will have corresponding Points on the PPF.
B) no point on the "diagonal" of the Edgeworth box diagram will correspond to a point On the PPF.
C) the PPF will show increasing opportunity costs.
D) the PPF will show constant opportunity costs.

Question 23

The slope of a consumer indifference curve at any given point on the curve reflects (ignoring the negative sign)

A) the marginal rate of transformation (MRT) in production of one commodity into the Other commodity.
B) the marginal rate of technical substitution (MRTS) between the factors of production.
C) the relative prices of the commodities in the consumption bundle of goods.
D) the marginal rate of substitution (MRS) of the consumer between the two goods.

Question 24

The curve in the following diagram is called an __________, and its slope (ignoring the Negative sign) indicates the ratio __________.

A). isoquant; w/r
B) isoquant; MPP_L/MPP_K
C) isocost line; w/r
D) isocost line; MPP_L/MPP_K

Question 25

You are given the following two possible community indifference curve maps for a country, where curves S₁ and S'₁ pertain to income distribution #1 and curves S₂ and S'₂ pertain to income distribution #2.

The differing shapes of the curves in these two maps could reflect the fact that in income distribution #2, in comparison with income distribution #1, a greater share of total income is held by individuals who value __________. In addition, in this diagram, point B is preferred to point A __________.

A) good X relatively more highly than good Y; on the basis of income distribution #2 but not on the basis of income distribution #1
B) good X relatively more highly than good Y; on the basis of income distribution #1 but not on the basis of income distribution #2
C) good Y relatively more highly than good X; on the basis of income distribution #2 but not on the basis of income distribution #1
D) good Y relatively more highly than good X; on the basis of income distribution #1 but not on the basis of income distribution #2

Question 26

The equilibrium condition for producers (i.e., the condition that exists when the isocost Line is tangent to an isoquant) is __________.

A) (MPP_L/r) = (MPP_K/w)
B) (MPP_L/MPP_K) = (w/r)
C) (MU_B/MU_A) = (P_B/P_A)
D) (MU_B/P_A) = (MU_A/P_B)