Deck 13: Competitive General Equilibrium

Question 1

Efficiency in production requires that:

A)MRS is identical for all firms.
B)MRTS is identical for all individuals.
C)MRTS is different for all individuals.
D)MRS is different for all firms.

Answer 1

MRS is different for all firms.

Question 2

Which of the following conditions is not necessary for the attainment of efficiency in general equilibrium?

A)The economy's marginal rate of transformation must be equal to each consumer's marginal rate of substitution.
B)Consumers must have identical incomes.
C)Marginal rates of technical substitution must be equal for all firms.
D)Marginal rates of substitution must be equal for all consumers.

Answer 2

Consumers must have identical incomes.

Question 3

The second welfare theorem:

A)states that a Pareto- optimal allocation can be reached via a competitive equilibrium.
B)does not allow for redistribution of income.
C)is a corollary of the first welfare theorem.
D)implies that not all Pareto- optimal allocations can be attained.

Answer 3

states that a Pareto- optimal allocation can be reached via a competitive equilibrium.

Question 4

The aggregate demand in an Edgeworth box is:

A)the sum of the net demands for a given good for all individuals.
B)the sum of all demands for a given good for all individuals.
C)the sum of the gross demands for a given good for all individuals.
D)the sum of all demands for all goods for an individual.

Question 5

The second welfare theorem states that any Pareto- optimal allocation:

A)the initial endowment is not relevant for the equilibrium.
B)is equally desirable for the economic agents.
C)can always be attained as a competitive equilibrium.
D)can be attained as a competitive equilibrium under some restrictive conditions.

Question 6

Which of the following assumptions does not apply to Edgeworth Box discussions of general equilibrium?

A)Indifference curves are smooth and convex to the appropriate origin.
B)Both goods are essential for all consumers.
C)Economic well being is determined only by the quantities consumed.
D)All Edgeworth Box allocations are Pareto optimal.

Question 7

The necessary conditions for an efficient outcome in a general equilibrium model with productions include:

A)efficiency in consumption and production.
B)efficiency of the production mix.
C)efficiency of the product mix, together with efficiency in consumption and production.
D)efficiency in production.

Question 8

Which of the following conditions must be met before the combination of goods produced in society can be considered efficient?

A)Pareto- improving moves are impossible.
B)The output of at least one good must be maximized.
C)The bundle of goods is within the production possibilities frontier.
D)All consumers are equally well off.

Question 9

A per- unit tax placed on the employment of a particular input in one of many regions will lead to:

A)a point which is inside the production possibilities frontier.
B)decrease in output prices.
C)a corner solution on the production possibilities frontier.
D)inefficiency in consumption.

Question 10

If, in a general equilibrium framework, MRT is greater than MRS, then

A)the indifference curve is steeper than the PPF
B)the isoquant is steeper than the PPF
C)the indifference curve is steeper than the isoquant
D)the PPF is steeper than the indifference curve

Question 11

All points on the production possibility frontier are allocations:

A)for which MRS equals MRT.
B)for which consumption is maximized.
C)all factors of production are used efficiently
D)where efficiency in production is not attained.

Question 12

Which of the following efficiency conditions is violated with the imposition of a sales tax on one good in a perfectly competitive economy?

A)efficiency in product mix
B)efficiency in production
C)efficiency in distribution
D)efficiency in consumption

Question 13

In a perfectly competitive economy, the imposition of a proportional income tax will lead to:

A)an efficient product mix.
B)too little leisure while too many other goods are consumed.
C)too much leisure while too few other goods are consumed.
D)a point outside the production possibilities frontier.

Question 14

The production possibility set is:

A)all the combinations of goods that can be produced.
B)the area above the production possibility frontier.
C)the set of points on the production possibility frontier.
D)the area below the production possibility frontier.

Question 15

The Pareto criterion for efficiency states that the economy is efficient if:

A)no person can be made worse off.
B)nobody can be made better off.
C)a person can be made better off at the same time as another person is made better off.
D)no person can be made better off without making another person worse off.

Question 16

The first theorem of welfare economics requires:

A)continuous budget lines.
B)the presence of externalities in consumption.
C)smooth and convex indifference curves.
D)the presence of two consumers with unambiguous preferences.

Question 17

Which of the following policies might eliminate the distortion associated with monopoly? The imposition of a:

A)subsidy on the monopoly produced good.
B)subsidy on competitively produced goods.
C)sales tax on one of the competitively produced goods.
D)sales tax on the monopoly produced good.

Question 18

Efficiency in consumption requires that all consumers:

A)have identical preferences.
B)are equally willing to exchange goods.
C)have equal marginal rates of technical substitution.
D)will pay identical prices for different consumption bundles.

Question 19

The production possibilities frontier will not be convex to the origin if:

A)all firms experience constant returns to scale.
B)the law of diminishing returns is universally satisfactory.
C)at least some firms experience increasing returns to scale.
D)no firms experience decreasing returns to scale.

Question 20

In a two- person to good world,if the initial endowment is such both persons have the same MRS then

A)there may or may not be a trade possible
B)there is another allocation which makes everyone better off
C)the initial endowment is Pareto optimal
D)there is some price at which a Pareto improving trade exists

Question 21

A contract curve:

A)represents the locus of points where the corresponding indifference curves intersect.
B)represents those points where the allocation of goods is Pareto efficient.
C)refers to actual contracts.
D)represents those points where supply equals demand.

Question 22

When all producers in an economy have identical marginal rates of technical substitution and all resources are used to produce goods, the:

A)bundle of goods produced is on the production possibilities frontier.
B)economy is in general equilibrium.
C)marginal rate of transformation equals the common marginal rate of technical substitution.
D)product mix is efficient.

Question 23

Which of the following is not illustrated in Edgeworth box.

A)endowments
B)consumer tastes
C)contract curve
D)production possibilities

Question 24

Given the assumptions for a general equilibrium, an allocation is efficient if:

A)it is allowed by law.
B)MRS is identical for all individuals.
C)a majority of voters support it.
D)it is Constitutional.

Question 25

The first theorem of welfare economics states that:

A)a competitive equilibrium is Pareto efficient.
B)a competitive equilibrium is Pareto inefficient.
C)a competitive equilibrium, while unrealistic, is desirable.
D)a competitive equilibrium maximizes wealth.

Question 26

An economy's production mix is efficient if:

A)MRTS are identical for all firms.
B)there is efficiency in consumption.
C)each consumer's MRS is identical with MRT.
D)there is efficiency in production.

Question 27

The contract curve represents all:

A)opportunities for gains from trade.
B)tangencies between indifference curves.
C)possibilities for unfair exchange.
D)possible voluntary exchanges.

Question 28

Whenever the economy operates below the production possibility frontier in a general equilibrium with production:

A)the MRS are for the produced goods are not equal.
B)the allocation in the production Edgeword box is Pareto efficient.
C)the allocation in the production Edgeworth box is off the contract curve.
D)the fairness is an issue in this economy.

Question 29

The efficiency in production requires:

A)MRT is equal to MRTS for all firms.
B)each consumer's MRS is identical with MRT.
C)MRTS are identical for all firms.
D)efficiency of the product mix.

Question 30

In an exchange economy, the Walrasian auctioneer announces relative prices until:

A)each person's indifference curve is tangent to her budget line.
B)each person announces her net supply and demand.
C)each person is at her initial endowment.
D)each person announces her gross supply and demand.

Question 31

In an Edgeworth box, a segment on the contract curve:

A)contains Pareto- optimal allocations.
B)is preferred by all individuals to certain points off the contract curve.
C)can be thought as a budget line.
D)is always more fair then some points off the contract curve.

Question 32

Net demand is:

A)the difference between what consumer A demands and what everyone else demands.
B)the difference between what consumer A demands and what he owns.
C)the inverse of net supply.
D)the difference between what consumer A demands and what consumer B demands.

Question 33

In an exchange economy with production, which of the following assumptions are required?

A)Most of the assumptions needed for an exchange economy without production.
B)Factors of production are rationed.
C)Constant returns to scale for all firms producing the two goods.
D)The presence of knowledge spillovers.

Question 34

Pareto optimality in an exchange economy with production requires all of the following except:

A)efficiency in consumption.
B)equality in the distribution of goods to consumers.
C)efficiency in production.
D)equality between each consumer's MRS and the economy's MRTS.

Question 35

In an exchange economy with only two goods, Walras's law implies that:

A)both markets cannot be simultaneously in equilibrium.
B)if one market is in equilibrium then the second one must be in equilibrium too.
C)the two markets can be in equilibrium only when indifference curves are smooth and convex.
D)net supply equals net demand at all times.

Question 36

Walrus Law states that:

A)supply creates its own demand.
B)if n- 1 markets are in equilibrium, then the last market is in equilibrium.
C)all markets will reach an equilibrium called general equilibrium.
D)equilibrium is where supply equals demand.

Question 37

The MRT is the absolute value of the slope of the

A)budget constraint
B)production possibility frontier
C)isoquant
D)indifference curve

Question 38

An Edgeworth Box diagram:

A)can be used to plot different allocation of goods.
B)cannot be drawn for three individuals, only two.
C)cannot be drawn for firms, only consumers.
D)illustrates non- competitive equilibria.

Question 39

In an Edgeworth Box, intersections between indifference curves:

A)indicate Pareto optimal allocations.
B)are logically impossible.
C)are on the contract curve.
D)indicate possible gains from trade.

Question 40

The doctrine of natural identity of interest is problematic because:

A)selfishness will never lead to a good outcome.
B)it does not connect private interest the public interest.
C)it is compatible with a wide variety of social institutions.
D)it does not fit very well today's globalized economy.

Question 41

At a point on the contract curve:

A)nobody gains in any transaction.
B)there is no fair transaction possible.
C)the gains from any transaction outweigh any losses.
D)any transaction would involve at least one loser.

Question 42

Which of the following is a necessary condition for an economy's product- mix to be efficient?

A)Producers have identical marginal rates of transformation.
B)Marginal rates of substitution and transformation differ.
C)Consumers have identical marginal rates of substitution.
D)Marginal products are identical.

Question 43

The issue of efficiency is concerned with:

A)the fairness of the consumption allocations.
B)the well- being of individual people.
C)the nature of the technology.
D)the size of firm's profits.

Question 44

The doctrine of natural identity of interests:

A)does not hold true under any conditions.
B)holds true under restrictive conditions.
C)holds true under very weak restrictions.
D)always holds true.

Question 45

Market power

A)is a source of profit.
B)is an assumption of the second welfare theorem.
C)is a source of inefficiency.
D)is an assumption of the first welfare theorem.

Question 46

Marvin's utility function is U_m(x₁,x₂)= x_1m + 2x_2m, where x_1m and x_2m are quantities of goods x₁ and x₂ he chooses. Similarly, Shelly's utility function is U_s(x₁,x₂)= 2x_1s + x_2s. In total they have 10 units of x₁ and 10 units of x₂. In an Edgeworth Box Diagram, where Marvin's origin is at the lower left and Shelly's is at the upper right, and where quantities of x₁ are measured on the horizontal axis and x₂ on the vertical axis, the contract curve is:

A)the sides of the box which intersect at the northwest corner.
B)the diagonal of the box from Marvin's origin to Shelly's origin.
C)the sides of the box which intersect at the southeast corner.
D)the line tying the origin with the endowment point.

Question 47

General equilibrium refers to:

A)an equilibrium where there are no taxes.
B)an equilibrium where prices are not changing over time.
C)an equilibrium where no specific good is referred to.
D)an equilibrium where all markets are in equilibrium.

Question 48

Imagine a simple economy composed of 2 inputs: z₁ and z₂, and 2 goods, x₁ and x₂. The marginal rate of transformation between x₁ and x₂ can not be expressed as the:

A)Absolute value of the slope of the production possibilities frontier.
B)MP ² /MP ¹ where MP ² is the marginal product of z₂ in the production of x₂ and MP ¹ is the 2 2 2 2
Marginal product of z₂ in the production of x₁.
C)Marginal rate of technical substitution.
D)MP ² /MP ¹ , where MP ² is the marginal product of z₁, in the production of x₂ and MP ¹ is 1 1 1 1
The marginal product of z₁ in the production of x₁.

Question 49

If a given allocation in Edgeworth box is characterized by same MRS then:

A)the allocation is not Pareto- optimal.
B)the two indifference curves are concave.
C)the two indifference curves intersect.
D)the two indifference curves are tangent.

Question 50

In an exchange economy, goods are:

A)bought, sold, and produced.
B)produced and consumed but not bought or sold.
C)bought and sold but not produced.
D)bought, sold, produced, and consumed.

Question 51

Efficiency in consumption requires that:

A)MRS is identical for all individuals.
B)MRS is different for all firms.
C)MRTS is identical for all individuals.
D)MRTS is different for all individuals.

Question 52

In the Edgeworth box, the contract curve must:

A)be concave.
B)pass through the endowment point.
C)be a straight line.
D)pass through the points where the two indifference curves are tangent to each other.

Question 53

When an exchange economy achieves a competitive equilibrium, the contract line and budget line:

A)intersect at tangent indifference curves.
B)intersect at intersecting tangent indifference curves.
C)are tangent to each other.
D)are tangent to the indifference curves.

Question 54

In a general equilibrium model, an allocation that equates MRS with MRTS unless:

A)the inputs are not perfectly substitutable
B)consumption of one of the goods provides positive spillover effects
C)the isoquants are convex
D)the production functions exhibit constant returns to scale

Question 55

In exchange economy the price of goods determines

A)potential consumption bundles
B)both income and potential consumption bundles
C)consumer preferences
D)income only

Question 56

If a monopolist engages in ordinary price discrimination, the economy is:

A)inefficient in production and consumption.
B)inefficient in production, consumption and product- mix.
C)inefficient in production and product- mix.
D)inefficient in consumption and product- mix.

Question 57

In a two good economy the statement that the equilibrium price in one market occurs where supply equals demand implies that supply equals demand in the other market is referred to as:

A)the law of demand.
B)the first theorem of welfare economics.
C)Walras' law.
D)the second theorem of welfare economics.

Question 58

Efficiency in general equilibrium requires that:

A)the allocation of output between firms is Pareto- optimal.
B)marginal rates of technical substitution are equal for all firms.
C)marginal rates of transformation are equal for all output levels.
D)all MRSs are identical.

Question 59

Walras' law states that, if there is more than one market each with many perfectly informed buyers and sellers:

A)and if one is in equilibrium, the others are also in equilibrium.
B)no one will offer a price above the reservation price.
C)a competitive equilibrium will result.
D)and if all but one is in equilibrium, the other is in equilibrium.

Question 60

The production possibilities frontier is concave to the origin if:

A)the opportunity cost of production good increases with quantity.
B)all firms experience increasing returns to scale in production.
C)at least one firm experiences decreasing returns to scale.
D)the marginal rate of transformation falls along it.

Question 61

Efficiency in production requires that

A)MRTS is equal across firms
B)MRTS equals MRS
C)MRT equals MRS
D)MRT is equal across firms

Question 62

The implication that all gains from trade are realized in a competitive equilibrium is implied by:

A)the law of large numbers.
B)Walras's law.
C)the first theorem of welfare economics.
D)the second theorem of welfare economics.

Question 63

When production is added to an exchange economy, which of the following assumptions is not needed?

A)Production functions exhibit increasing returns to scale.
B)Isoquants are smooth and convex.
C)Production involves no externalities.
D)Both inputs are essential for both goods.

Question 64

The size of the Edgeworth box for consumption is determined by:

A)the productivity of the economy.
B)the presence of externalities in consumption.
C)the available quantities of the two goods.
D)the sum of the MRS of the two indifference curves.

Question 65

The doctrine of the natural identity of interests:

A)was first introduced by F. Y. Edgeworth.
B)says that selfish behaviour can never improve society's welfare.
C)is also known as the visible hand theory.
D)was first proposed by Adam Smith in "The Wealth of Nations."

Question 66

The endowment point in an Edgeworth box:

A)shows the efficient allocation of resources.
B)shows the optimal allocation of resources.
C)shows the initial allocation of resources.
D)shows the equitable allocation of resources.

Question 67

Which of the following is not a production assumption for competitive general equilibrium models?

A)Isoquants are smooth.
B)Isoquants are positively sloped.
C)Production involves no externalities.
D)Isoquants are convex.

Question 68

In a many- person exchange economy, given all the relevant assumptions, an allocation is Pareto- optimal if:

A)it does not belong to the contract curve.
B)there are allocation strictly preferred by all persons.
C)the MRS are identical for all individuals.
D)the indifference curves are not tangent in that point.

Question 69

A monopoly in a general equilibrium model is considered inefficient because:

A)the conditions for efficiency in consumption are violated.
B)the monopolist earns positive profit.
C)the economy's product- mix is inefficient.
D)the conditions for efficiency in production are violated.

Question 70

Marvin's utility function is U_m(x₁,x₂)= x_1m + 2x_2m, where x_1m and x_2m are quantities of goods x₁ and x₂ he chooses. Similarly, Shelly's utility function is U_s(x₁,x₂)= 2x_1s + x_2s. In total they have 10 units of x₁ and 10 units of x₂. Suppose the initial allocation is such that Marvin has all 10 units of good x₁ and Shelly has all 10 units of good x₂. Relative to the initial allocation, the allocation in which each of them has 5 units of each good:

A)is a Pareto- improvement, and also Pareto optimal.
B)is a Pareto improvement, and is not Pareto optimal.
C)is not a Pareto- improvement.
D)makes Marvin better- off and Shelly worse- off.

Question 71

The income of the participants in a exchange economy is determined by:

A)the absolute prices of the goods being traded.
B)the relative prices of the two goods being traded.
C)the relative prices of the two goods and the individual endowments.
D)levels of their productivity.

Question 72

An economy's product- mix is said to be efficient if:

A)all MRSs are the same with the MRT.
B)there is efficiency in production.
C)there is efficiency in consumption.
D)there is efficiency in both production and consumption.

Question 73

When relative prices change in an exchange economy, an individual's budget line:

A)pivots at its intercept with an axis.
B)shifts in the direction opposite the price change.
C)pivots around her initial endowment.
D)shifts in the direction of the price change.

Question 74

A given allocation in Edgeworth box is Pareto- optimal if:

A)it belongs to one of the sides.
B)it belongs to one of the diagonals of the box.
C)two indifference curves are tangent at that point.
D)two indifference curves intersect in that point.

Question 75

Which of the following is not true of Edgeworth Box Diagrams?

A)Smooth convex indifference curves indicate Pareto optimalities.
B)Indifference curves are convex to the appropriate origin.
C)Their dimensions reflect the available quantities of two goods.
D)Each point indicates a consumption bundle.

Question 76

The Pareto criterion says that the general equilibrium of an economy is efficient:

A)if a majority of voters support it.
B)if making someone better off would make someone else worse off.
C)under all conditions.
D)unless someone wants a different equilibrium.

Question 77

The net supply of a good for an individual being part of an exchange economy is:

A)equal to the net demand.
B)equal to the aggregate supply.
C)the difference between what he or she supplies and what it owns as endowment.
D)the difference between what he or she supplies and what the other market participants supply.

Question 78

In a perfectly competitive economy in general competitive equilibrium, a per unit sales tax imposed on a particular good is likely to result in:

A)unemployed resources.
B)too little of other goods being produced.
C)too much of that good being produced.
D)too little of that good being produced.

Question 79

The size of the Edgeworth box for productions is determined by:

A)both the technology and the amount of inputs.
B)the technology available for the production of the two goods.
C)the productive capacity of the economy.
D)the amount of the inputs in the production of the two goods.

Question 80

In an Edgeworth Box Diagram, the contract curve is not:

A)the set of Pareto optimal allocations.
B)the set of points where indifference curves are tangent.
C)the diagonal of the box.
D)the set of allocations such that Pareto- improving trades do not exist.