Deck 15: General Equilibrium

Question 1

On the basis of the Carmageddon study, which of the following statements is (are) TRUE about adding another traffic lane to a highway?

A) I
B) II
C) III
D) I and II

Answer 1

D

Question 2

The market for soybeans is characterized by = 16 - P_s + P_c and = P_s, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 40 - P_c + P_s and = P_c, where is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from:

A) 32 million to 24 million bushels.
B) 32 million to 20 million bushels.
C) 20 million to 11 million bushels.
D) 24 million to 14 million bushels.

Answer 2

A

Question 3

The market for soybeans is characterized by = 16 - P_s + P_c and = P_s, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 40 - P_c + P_s and = P_c, where Q_c is the quantity of corn in millions of bushels. In general equilibrium, what is the equilibrium quantity of soybeans?

A) 42 million bushels
B) 18 million bushels
C) 24 million bushels
D) 30 million bushels

Answer 3

C

Question 4

Use the following to answer question:
Table 15.1
(Table 15.1) Using the Rawlsian social welfare function, rank the utility outcomes from the most to least desirable.

A) outcome A, outcome B, outcome C
B) outcome B, outcome C, outcome A
C) outcome A, outcome C, outcome B
D) outcome C, outcome A, outcome B

Question 5

Which of the following is an example of partial equilibrium analysis?

A) A tax on Internet sales reduces the quantity of online sales and the demand for Internet access. The lower price for Internet access will spur increased demand for online sales.
B) A deep freeze has destroyed much of the orange crop, raised the price of oranges, and reduced the quantity sold.
C) Productivity enhancements in the manufacturing sector have increased wages in that sector, putting upward pressures on wages necessary to attract workers to the service sector.
D) Scientific research indicates that there are health benefits to wearing cotton. Knowledge of these benefits raises the demand for cotton and reduces the supply of corn as farmers plant more cotton.

Question 6

Goods X and Y are substitute goods. If the demand for good X increases, the price of good X will _____ and cause a(n) _____ in the demand for good Y. The _____ price for good Y will further _____ the demand for good X, while the _____ price for good X will further _____ the demand for good Y.

A) increase; increase; higher; increase; higher; increase
B) increase; decrease; lower; decrease; lower; decrease
C) decrease; decrease; lower; decrease; lower; decrease
D) decrease; increase; lower; increase; higher; increase

Question 7

Consider a society with three people whose utilities are U_A = 40, U_B = 90, and U_C = 60. What is the value of the Rawlsian utility function?

A) 190
B) 50
C) 40
D) 10

Question 8

The market for soybeans is characterized by = 18 - P_s and = P_s - 0.5P_c, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 18 - P_c and = P_{c -} 0.5P_s, where Q_c is the quantity of corn in millions of bushels. Suppose the government strengthens the mandate for the use of corn-based ethanol, increasing the demand for corn by 6 million bushels at any given price. In general equilibrium, the equilibrium price of corn is _____, and the equilibrium quantity of soybeans is _____.

A) $14; 4 million bushels
B) $12.80; 5.2 million bushels
C) $13.50; 7 million bushels
D) $10.40; 8.6 million bushels

Question 9

Which of the following situations is an example of general equilibrium analysis?

A) An excise tax on cigarettes reduces the supply of cigarettes, leading to higher cigarette prices.
B) A severe frost destroys a significant portion of the coffee crop, leading to higher coffee prices. The higher coffee prices increase the demand for tea, resulting in higher tea prices. The higher tea prices in turn cause the demand for coffee to rise even more, further increasing the price of coffee.
C) A decrease in the demand for peanuts causes both the equilibrium price and quantity of peanuts to decrease. As a result, peanut farmers reduce their peanut output and supply decreases.
D) As fuel costs rise, airlines' costs of production rise. Higher production costs drive profits down, leading to higher air fares and fewer flights.

Question 10

What are the general equilibrium effects between labor markets and housing markets following an increase in labor demand?

A) As workers' wages increase, more people move into an area, driving up housing prices. The rising housing prices slow the migration of workers to an area.
B) An increase in labor demand will cause a larger wage reduction in areas with an elastic housing supply than with an inelastic housing supply.
C) An increase in labor demand will cause a larger wage increase in areas with an elastic housing supply than with an inelastic housing supply.
D) An increase in labor demand will cause a larger increase in employment in areas with an inelastic housing supply than with an elastic housing supply.

Question 11

Which of the following statements is (are) TRUE?

A) II and III
B) I, II, and III
C) II
D) III

Question 12

How has the oral birth control pill affected labor markets?

A) The Pill has increased female labor force participation but reduced the number of years females spend in school.
B) The Pill has made it easier for women to pursue careers in business, law, and medicine, resulting in less able females choosing to teach.
C) The Pill has reduced female labor force participation but has no effect on years of schooling.
D) The availability of the Pill has led some women not to postpone marriage, which has driven market wages up as females quit work upon marrying.

Question 13

In a country with 100 people, each person has a utility function given by U = LY, where L is hours of leisure per day and Y is daily income. If each person earns $50 per day and enjoys 10 hours of leisure, what is the value of the utilitarian social welfare function for the country as a whole?

A) 500
B) 250
C) 25,000
D) 50,000

Question 14

Farmers can use their land to grow corn or cotton. Because of the increased demand for moisture-wicking sportswear, the demand for cotton has decreased. What are the general equilibrium effects in the markets for corn and for cotton?

A) The price of cotton will fall because of the decrease in demand, and farmers will plant less cotton. The decrease in the supply of cotton will raise both cotton prices and the demand for corn.
B) The price of cotton will fall because of the decrease in demand, and farmers will plant less cotton and more corn. The increase in the supply of corn will push down corn prices.
C) The price of cotton will fall because of the decrease in demand, and farmers will plant less corn. The decrease in the supply of corn will raise corn prices and depress the demand for cotton.
D) The price of cotton will rise because of the decrease in demand, and farmers will plant more cotton and less corn. The decrease in the supply of corn will push up corn prices.

Question 15

Brett, Art, and Isabel reside on a tiny island in the Pacific. All three of them have a utility function given by U = Y^0.5, where Y is income per day. Suppose that Brett earns $7 per day, Art earns $25 per day, and Isabel earns $36 per day. What happens to the value of the utilitarian social welfare function If the government takes $9 of Art's income and gives it to Brett?

A) The utilitarian social welfare function will increase from 13.65 to 14.
B) The utilitarian social welfare function will remain unchanged at 68.
C) The utilitarian social welfare function will decrease from 15.50 to 12.30.
D) The utilitarian social welfare function will increase from 8.20 to 12.

Question 16

The supply of housing in New York City is less elastic than in York, Pennsylvania. As a result, the long-run labor supply curve in New York City is _____ than the long-run labor supply curve in York.

A) more inelastic
B) more elastic
C) more negatively sloped
D) less elastic

Question 17

The market for soybeans is characterized by = 18 - P_s and = P_s - 0.5P_c, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 18 - P_c and = P_{c -} 0.5P_s, where Q_c is the quantity of corn in millions of bushels. In general equilibrium, the equilibrium quantity of corn is _____ bushels, and that of soybeans is _____ bushels.

A) 6 million; 6 million
B) 9 million; 9 million
C) 6.5 million; 6.5 million
D) 16 million; 16 million

Question 18

The market for wheat is characterized by = 21 - 2P_w + P_c and = P_w, where Q_w is the quantity of wheat in millions of bushels, P_w is the price per bushel of wheat, and P_c is the price per bushel of corn. The market for corn is characterized by = 21 - 2P_c + P_w and = P_c, where is the quantity of corn in millions of bushels. In general equilibrium, what are the prices of wheat and corn?

A) P_w = $12; P_c = $12
B) P_w = $6.50; P_c = $9.50
C) P_w = $9.50; P_c = $6.50
D) P_w = $10.50; P_c = $10.50

Question 19

Pareto efficiency occurs when an economic allocation of goods:

A) makes more winners than losers.
B) equalizes the net gains to all individuals.
C) cannot be changed without at least making one person worse off.
D) enables the winners to compensate the losers for their losses.

Question 20

The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _____ and can best be studied by using _____ analysis.

A) Dutch disease; general equilibrium
B) Dutch disease; partial equilibrium
C) Baumol's cost disease; general equilibrium
D) Baumol's cost disease; partial equilibrium

Question 21

At a birthday party, all the little boys and girls were given various gifts. Some of the boys and girls traded their gifts with one another until everyone was completely happy. This example reflects:

A) input efficiency.
B) output efficiency.
C) altruistic efficiency.
D) exchange efficiency.

Question 22

Use the following to answer question:
Table 15.2
(Table 15.2) Which of the following input mixes provides an efficient allocation of labor and capital between the two industries?

A) I
B) II
C) III
D) IV

Question 23

Use the following to answer questions 32-33:
Figure 15.7
(Figure 15.7) If the economy is at point B, the input mix is:

A) not Pareto-efficient, so a movement to point C or point D would be a Pareto improvement.
B) Pareto-efficient, so a movement to any other point would be Pareto-inefficient.
C) not Pareto-efficient, so only a movement to point D would be a Pareto improvement.
D) not Pareto-efficient, so a movement to point C or point D would be Pareto-inefficient.

Question 24

Use the following to answer question:
Figure 15.4
(Figure 15.4) What is the name of curve A, and what is its significance?

A) contract curve: shows all possible Pareto-efficient allocations of pancakes and cereal between Elaine and Jerry
B) contract curve: shows all possible allocations of pancakes and cereal that give Elaine and Jerry equal utility
C) output curve: shows all possible combinations of pancakes and cereal that can be produced at a constant per-unit cost
D) isoprofit curve: shows all possible combinations of pancakes and cereal that give the manufacturers equal profit

Question 25

Use the following to answer question:
Figure 15.2
(Figure 15.2) Suppose that Elaine has 6 pancakes and 5 bowls of cereal and Jerry has 2 pancakes and 5 bowls of cereal. Which of the following allocations would be a Pareto improvement? Elaine has _____ pancakes and _____ bowls of cereal, and Jerry has _____ pancakes and _____ bowls of cereal.

A) 5; 6; 3; 4
B) 5; 5; 3; 5
C) 6; 6; 2; 4
D) 7; 5; 1; 5

Question 26

Use the following to answer question:
Figure 15.5
(Figure 15.5) Suppose that Elaine has 1 pancake and 4 bowls of cereal, which gives her a marginal utility of pancakes of 20 and marginal utility of cereal of 5. Jerry has 7 pancakes and 6 bowls of cereal, which gives him a marginal utility of pancakes of 6 and marginal utility of cereal of 18. Which of the following statements is (are) TRUE?

A) The allocation is Pareto-efficient.
B) Elaine and Jerry would both be better off if Elaine traded 1 pancake for 1 bowl of Jerry's cereal.
C) A Pareto improvement would be for Elaine to give Jerry 2 bowls of cereal in exchange for 1 pancake.
D) Elaine and Jerry would both be better off if Elaine traded 1/2 pancake for 1 bowl of Jerry's cereal.

Question 27

Use the following to answer questions 34-35:
Figure 15.8
(Figure 15.8). Suppose the food industry is using 4 capital inputs and 4 labor inputs, while the clothing industry is using 1 capital input and 4 labor inputs. It would be a Pareto improvement if the _____ industry gave _____ capital input(s) to the _____ industry in exchange for _____ labor input(s).

A) food; 1; clothing; 1
B) clothing; 1; food; 1
C) food; 2; clothing; 2
D) clothing; 1; food; 2

Question 28

Use the following to answer question:
Figure 15.6
(Figure 15.6) Which of the following allocations represents a Pareto improvement from point A?

A) II and III
B) II
C) I and III
D) I, II, and III

Question 29

Use the following to answer questions 23-24:
Figure 15.1
(Figure 15.1) The market prices for cereal and pancakes are $2 and $1, respectively. Pareto efficiency requires that the marginal rate of substitution of cereal for pancakes equal _____ for Elaine and _____ for Jerry.

A) 2; 1/2
B) 1/2; 2
C) 2; 2
D) 2; 1

Question 30

Use the following to answer question:
Figure 15.9
(Figure 15.9) Which of the following output combinations does NOT fall on the production contract curve?

A) I, II, and III
B) I
C) III
D) I and II

Question 31

Use the following to answer questions 34-35:
Figure 15.8
(Figure 15.8) Suppose the food industry is using 3 capital inputs and 5 labor inputs, while the clothing industry is using 2 capital inputs and 3 labor inputs. The economy's output of food is _____ units and the output of clothing is _____ units.

A) greater than 100; less than 40
B) greater than 100; greater than 40
C) less than 100; greater than 40
D) less than 100; less than 40

Question 32

Use the following to answer questions 23-24:
Figure 15.1
(Figure 15.1) Which of the following allocations of cereal and pancakes is NOT possible?

A) Elaine consumes 1 pancake and 4 bowls of cereal, and Jerry consumes 7 pancakes and 6 bowls of cereal.
B) Elaine consumes 8 pancakes and 10 bowls of cereal, and Jerry consumes no pancakes and no cereal.
C) Elaine consumes 3 pancakes and 6 bowls of cereal, and Jerry consumes 6 pancakes and 3 bowls of cereal.
D) Elaine consumes 6 pancakes and 5 bowls of cereal, and Jerry consumes 2 pancakes and 5 bowls of cereal.

Question 33

Use the following to answer question:
Figure 15.3
(Figure 15.3) Which of the following statements is (are) TRUE?

A) I
B) I and II
C) II
D) I, II, and III

Question 34

Suppose that in Blue City each year 50 rock concerts and 30 opera concerts take place. If the Blue City entertainment czar decides to schedule 49 rock concerts and 31 opera concerts next year, about 65% of the population will approve, 25% will disapprove, and 10% won't care. This indicates that:

A) output efficiency requires an equal number of rock and opera concerts.
B) it would be a Pareto improvement to schedule one more opera concert at the expense of a rock concert.
C) it would not be a Pareto improvement to schedule one more opera concert at the expense of a rock concert.
D) input efficiency requires an equal number of rock and opera concerts.

Question 35

In the golf club industry, the marginal product of labor and capital are given as and . In the tennis racket industry, the marginal product of labor and capital are given as and . The price of labor is W and of capital is R. An efficient allocation of labor and capital across the golf club and tennis racket industries requires the following condition:

A)
B)
C)
D)

Question 36

If the initial allocation of goods is not efficient, consumers will:

A) not be able to trade goods and achieve Pareto efficiency.
B) buy and sell goods at market prices until the marginal rate of substitution is equalized across all consumers.
C) be required to consume somewhere along their contract curve.
D) change their tastes and preferences via their utility function to match the market's marginal rate of substitution.

Question 37

In an economy with two industries, food and clothing, the price of labor is $100 and the price of capital is $80. Input efficiency requires that the marginal:

A) rate of technical substitution of labor for capital be 100 in the food industry and 80 in the clothing industry.
B) rate of technical substitution of labor for capital be 1.25 in the food industry and in the clothing industry.
C) product of labor be 100 in the food industry, and the marginal product of capital be 80 in the clothing industry.
D) product of labor equal the marginal product of capital in the food industry and in the clothing industry.

Question 38

For Christmas, Josh and Cybil, who are brother and sister, each recently received 25 iTunes music downloads and 10 movie passes. Josh's marginal rate of substitution of music downloads for movie passes is 1/4, while Cybil's marginal rate of substitution of music downloads for movie passes is 2. For a Pareto improvement over the original allocation, Josh gives Cybil _____ music download(s) for _____ of her movie passes.

A) 1; 3
B) 3; 1
C) 8; 1
D) 1; 4

Question 39

Use the following to answer questions 32-33:
Figure 15.7
(Figure 15.7) Which of the following statements is (are) TRUE?

A) At point A, the economy is producing an equal number of jets and drones.
B) At point B, 3 units of capital and 7 units of labor are used to produce drones.
C) At point B, the labor and capital inputs are efficiently allocated across the economy.
D) Fewer jets are being produced at point D than at point A.

Question 40

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) Which of the following statements is (are) TRUE?

A) II
B) I and III
C) I
D) II and III

Question 41

The market for coffee is characterized by and , where Q_C is the quantity of coffee in hundreds of pounds, P_C is the price per hundred pounds of coffee, and P_T is the price per hundred pounds of tea. The market for tea is characterized by and , where Q_T is the quantity of tea in hundreds of pounds. What is the equilibrium quantity of coffee and tea in general equilibrium if a new medical study touts the benefits of drinking coffee, leading to an increase 30 pounds of coffee at every price?

Question 42

The market for coffee is characterized by and , where Q_C is the quantity in hundreds of pounds and P_C is the price per hundred pounds. Also, P_T is the price per hundred pounds of tea. The market for tea is characterized by and , where Q_T is the quantity of tea in hundreds of pounds. What is the equilibrium quantity of coffee and tea in general equilibrium?

Question 43

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases.

Question 44

What type of government policy aimed at increasing efficiency would cause the SMALLEST efficiency losses?

A) payroll taxes
B) lump-sum transfers
C) corporate taxes
D) capital gains taxes

Question 45

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) Suppose the economy is achieving output efficiency at point I, where the marginal rate of transformation (MRT) is 1/4 and the marginal product of labor in the cereal industry is 12. Which of the following statements is (are) TRUE?

A) The marginal rate of substitution (MRS) between pancakes and cereal is 4.
B) The marginal product of capital in the pancake industry divided by the marginal product of capital in the cereal industry is 4.
C) The marginal product of capital in the pancake industry is 3.
D) MRS/MRT = 1/4.

Question 46

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) Suppose that the economy is operating at point G. In the cereal industry the marginal product of labor and capital are 10 and 4, respectively. What is the marginal rate of technical substitution of labor for capital in the pancake industry?

A) 2.5
B) 14
C) 6
D) 40

Question 47

Barbecue sauce and chicken thighs are complement goods. Suppose that the government places a tax on chicken thighs to discourage the consumption of fatty meat.

Question 48

Judy, Lucy, Amy, and Anna are college roommates living off campus. All four of them have a utility function given by U = Y^0.5, where Y is income per day. Suppose that Judy earns $8 per day, Lucy earns $81, Amy earns $49, and Anna earns $16. What happens to the value of the utilitarian social welfare function if $17 is taken from Lucy and given to Judy?

Question 49

The market for soybeans is characterized by = 21 - P_S and = 2P_S - P_C, where Q_S is the quantity of soybeans in millions of bushels, P_S is the price per bushel of soybeans, and P_C is the price per bushel of corn. The market for corn is characterized by = 21 - P_C and = 2P_{C -} P_S, where Q_C is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans?

Question 50

The Second Welfare Theorem states that:

A) perfectly competitive markets, if Pareto-efficient, are equitable.
B) Pareto efficiency implies that input allocations are socially desirable.
C) Pareto efficiency cannot occur if resources are not equitably allocated.
D) any Pareto-efficient allocation can be achieved in a perfectly competitive market by adjusting the initial allocations of goods.

Question 51

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. Would the new number of exams be a Pareto improvement?

Question 52

The MRTS_LK is 5 in the cell phone industry and 8 in the tablet industry. The cell phone industry should use _____ labor and _____ capital, and the tablet industry should use _____ labor and _____ capital.

A) more; more; less; less
B) less; less; more; more
C) more; less; less; more
D) less; more; more; less

Question 53

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) Which of the following statements is (are) TRUE at point I?

A) III
B) I and II
C) I, II, and III
D) II

Question 54

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) At point G, the marginal cost of a pancake is 50 cents and the marginal cost of a bowl of cereal is also fifty cents. At this point, consumers are willing to trade 2 bowls of cereal for an additional pancake. Which of the following statements is (are) TRUE?

A) The economy is not allocating its inputs efficiently.
B) The economy is not achieving output efficiency because the MRS is less than the MRT.
C) The economy is achieving output efficiency because the MRT equals 1.
D) The economy is not achieving output efficiency because the MRS is greater than the MRT.

Question 55

Use the following to answer questions 40-45:
Figure 15.10
(Figure 15.10) At point G, the marginal rate of transformation from pancakes to cereal is 3. What does this mean?

A) Consumers prefer pancakes to cereal by a 3-to-1 margin.
B) Consumers prefer cereal to pancakes by a 3-to-1 margin.
C) The economy must give up producing 3 pancakes to make another bowl of cereal.
D) The economy must give up producing 1 pancake to make 3 more bowls of cereal.

Question 56

The First Welfare Theorem states that:

A) perfectly competitive markets in general equilibrium distribute resources Pareto-efficiently.
B) all markets in general equilibrium-from perfectly competitive to monopoly-distribute resources Pareto-efficiently.
C) only monopoly markets in general equilibrium distribute resources Pareto-efficiently.
D) perfectly competitive markets in general equilibrium distribute resources Pareto-efficiently even in the face of asymmetric information, externalities, and public goods.

Question 57

Higher education and textbooks are complementary goods. The government decides to subsidize public college education. Compare the partial and general equilibrium effects of this subsidy on the market for public education.

Question 58

Two legendary rock bands, The Who and Kiss, are scheduling concerts in Detroit this summer. The supply of Who concert tickets is fixed at 40,000 and the supply of Kiss concert tickets is fixed at 40,000. The demand for Who and Kiss tickets are given by the following equations:
Who: = 100,000 - 1,000P_W + 250P_K
Kiss: = 100,000 - 1,000P_K + 250P_W
where P_W is the price of a Who ticket and P_K is the price of a Kiss ticket. In general equilibrium, what are prices of a Who and a Kiss ticket?

Question 59

Judy, Lucy, Amy, and Anna are college roommates living off campus. All four of them have a utility function given by U = Y^0.5, where Y is income per day. Suppose that Judy earns $8 per day, Lucy earns $81, Amy earns $49, and Anna earns $16. What happens to the value of the Rawlsian social welfare function if $17 is taken from Lucy and given to Judy?

Question 60

Frozen dessert companies produce ice cream and yogurt. Because of a large increase in obesity and a growing problem of type II diabetes among children, the government bans the sale and consumption of ice cream to anyone under 13 years of age. Analyze the general equilibrium effects by focusing on the supply-side linkages between ice cream and yogurt.

Question 61

Use the following to answer questions 64-65:
Figure 15.11
(Figure 15.11) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P².

Question 62

What is a social welfare function? What are the problems with using social welfare functions in evaluating market outcomes?

Question 63

In a small economy that produces smart phones and laptops, the marginal cost of a smart phone is $60 and the marginal cost of a laptop is $150.

Question 64

Use the following to answer question:
Table 15.4
(Table 15.4) This small economy has a total of 4 units of labor and 4 units of capital to be used between the boat and car industries.

Question 65

Abby and Sofia both like My Little Pony toys and Matchbox cars. Explain whether point A is or is not a Pareto efficient outcome. If it is not a Pareto efficient outcome, what combination of products may be a Pareto efficient allocation and why?

Question 66

Draw an Edgeworth box for Elaine and Jerry. A total of 8 pancakes and 10 bowls of cereal can be allocated between them. Draw the consumption contract curve and label it. If Jerry consumes all 8 pancakes and 10 bowls of cereal, is this allocation Pareto-efficient?

Question 67

Abby and Sofia both like My Little Pony toys and Matchbox cars. Both 3-year-olds are on their U₃ indifference curve. Explain why each point would or would not represent a Pareto improvement.

Question 68

Use the following to answer question:
Table 15.3
(Table 15.3) The table shows the utility levels for three people living on a tiny island. The island's benevolent dictator, Gilligan, is considering a policy that will increase Thurston's utility by 10 and decrease Ginger's and Mary Ann's by 5.

Question 69

Abby and Sofia both like My Little Pony toys and Matchbox cars. What is the value of each child's marginal rate of substitution at point A? Explain whether that point is or is not a Pareto-efficient outcome.

Question 70

Use the following to answer question:
Figure 15.14
(Figure 15.14) Suppose the marginal rate of transformation at point B is 1/2 and the marginal product of capital in the food industry is 10. What is the marginal product of capital in the clothing industry? Now suppose the marginal rate of transformation at point A is 2 and the marginal product of labor in the clothing industry is 8. What is the marginal product of labor in the food industry?

Question 71

Use the following to answer question:
Figure 15.12
(Figure 15.12) Answer the following questions.

Question 72

Use the following to answer question:
Figure 15.13
(Figure 15.13) Answer the following questions.

Question 73

Use the following to answer questions 64-65:
Figure 15.11
(Figure 15.11) Answer the following questions.

Question 74

Explain what it means for Abby to make a horizontal movement in the Edgeworth box. Explain what it means for Abby to make a vertical movement in the Edgeworth box.

Question 75

Maximilian rules over a three-person society. The three people are Andre, Bojan, and Soumendra. Andre has a utility level of 60, Bojan's utility level is 80, and Soumendra's utility level is 10.

Question 76

Answer the following questions.

Question 77

What is the First Welfare Theorem? What conditions are required for it to hold true?

Question 78

In a small economy, labor and capital are used to produce food and medicine. In the food industry, the MRTS_LK is 8, and in the medicine industry it is 4. Is the allocation of labor and capital efficient between the two industries? If not, suggest a reallocation of labor and capital that will lead to both industries producing more output.

Question 79

An economy has a total of 20 units of labor and 10 units of capital to produce food or clothing.