Deck 22: General Equilibrium and the Origins of the Free Market and Interventionist Ideologies

Question 1

People who feel that there is a flaw in the idea that markets are efficient are

A) laissez-faire advocates
B) perfect competition advocates
C) interventionists

Answer 1

interventionists

Question 2

Free-market advocates argue that government interference with the competitive process may ___________ the efficiency of that process.

A) reduce
B) increase
C) have no effect on

Answer 2

reduce

Question 3

The condition for efficiency in production states that a given set of inputs available in an economy should be allocated across a set of producers until the marginal rate of technical substitution for each pair of inputs is equal for each producer.

Answer 3

True

Question 4

All the possible utility levels associated with the Pareto-optimal allocation for each product mix point on the production possibilities frontier is known as the utility possibilities frontier.

Question 5

An allocation of inputs (capital and labor) where it is not possible to reallocate these inputs and produce more of at least one good in the economy without decreasing the amount of some other good that is produced is a Pareto-efficient allocation.

Question 6

Rawlsian justice is the idea that an economy should be organized so as to maximize the welfare of the least well-off person in society.

Question 7

The first fundamental theorem of welfare economics indicates that, when surplus demand or supply exists, the allocations of inputs and outputs in the economy define a Pareto-optimal outcome.

Question 8

The condition for efficiency in consumption states that a given set of goods in an economy should be allocated across a set of consumers until the marginal rate of substitution for each pair of goods is equal for each consumer.

Question 9

If there is no other allocation that will allow the economy to produce more of one good without producing less of another good, then a given allocation

A) produces extra-normal profits
B) is Pareto efficient
C) Both answers are correct

Question 10

The second fundamental theorem of welfare economics tells us that every Pareto-optimal allocation for an economy can be achieved as a competitive equilibrium for an appropriately defined distribution of income.

Question 11

People who feel strongly that the government should not interfere with the functioning of perfectly competitive markets are

A) interventionists
B) free-market advocates
C) monopolists

Question 12

Once we move away from any allocation on the contract curve,

A) either one person will be better off and one worse off
B) both persons will be worse off
C) Both answers are correct

Question 13

The allocations on the contract curve are Pareto

A) indifferent
B) efficient
C) interventions

Question 14

A curve that shows the maximum amounts of goods that an economy can produce if it allocates its inputs efficiently is called the contract curve.

Question 15

The idea that performances of perfectly competitive economies and other types of economies should be judged not on the basis of the outcomes they determine, but rather on the basis of the process by which those outcomes are determined is known as envy-free justice.

Question 16

The slope of an isoquant represents the marginal rate of

A) technical substitution
B) substitution
C) revenue to cost

Question 17

The condition for consistency of production and consumption states that, for any mix of outputs produced, the marginal rate of transformation of those goods in production must equal the marginal rates of substitution for all consumers using those goods.

Question 18

In an Edgeworth-box analysis of production, the size of the capital stock is determined by previous

A) amounts of investment and depreciation
B) birth rates
C) death rates

Question 19

Imagine that an economy is at a point in an Edgeworth box where person 1's MRS of good 2 for good 1 equals 8/3 and person 2's MRS of good 2 for good 1 equals 1/6. This allocation

A) is Pareto efficient
B) cannot be Pareto efficient
C) provides no motivation for the agents to trade

Question 20

A belief upon which the free-market argument rests is

A) perfect competition will allocate inputs to the production of goods in an inefficient manner
B) once goods are produced, they will be distributed in an efficient manner by the forces of supply and demand in competitive markets
C) the final mix of goods produced will be determined by the distribution of income generated by the oligopolistic process

Question 21

A curve that shows the maximum amounts of goods that an economy can produce if it allocates its inputs efficiently is called the

A) contract curve
B) production possibilities frontier
C) Pareto-efficiency frontier

Question 22

A Pareto-optimal allocation is one in which the sum of the consumer surplus and the producer surplus is

A) minimized
B) maximized
C) negative

Question 23

Are all counterarguments to the free-market ideology based on equity? Do you have examples?

Question 24

On the contract curve, MRTS¹K fₒᵣ L ___ MRTS²K fₒᵣ L.

A) =
B) >
C) <

Question 25

The Rawlsian position holds that points that are not on the utility possibilities frontier and therefore represent ______________ allocations may be desirable from a moral perspective if they are more ______________.

A) inefficient, equitable
B) inefficient, inequitable
C) equitable, inefficient

Question 26

Why must the condition for efficiency in production be satisfied?

Question 27

The interventionist argument centers on the belief that free-market advocates give _________________ weight to Pareto optimality as the criterion for judging the outcomes of an economy.

A) just the right
B) too much
C) too little

Question 28

Compare efficiency and equity.

Question 29

Because all consumers are equating their marginal rates of substitution to the price ratio, when the price ratio equals the ratio of marginal costs, the consumers are also equating their marginal rates of _______________ to the ratio of marginal _______________, which is in turn equal to the marginal rate of _______________.

A) transformation, costs, substitution
B) substitution, costs, transformation
C) costs, revenue, transformation

Question 30

There will always be another product mix allocation pair that will make all consumers and producers better off unless MRT ___ MRS.

A) =
B) <
C) >

Question 31

The slope of the production possibilities frontier is the marginal rate of

A) technical substitution
B) transformation
C) substitution

Question 32

Perfectly competitive markets satisfy the condition for

A) efficiency in consumption only
B) efficiency in consumption, efficiency in production, and consistency of production and consumption
C) efficiency in production and consistency of production and consumption only

Question 33

The condition for consistency of production and consumption specifies that the marginal rate of substitution of good 1 for good 2 equals the

A) ratio of the prices of the goods
B) marginal rate of transformation of the two goods
C) marginal revenue under perfect competition

Question 34

How does the second fundamental theorem of welfare economics relate to the first fundamental theorem?

Question 35

The idea that performances of perfectly competitive economies and other types of economies should be judged not on the basis of the outcomes they determine, but rather on the basis of the process by which those outcomes are determined is called

A) Rawlsian justice
B) process justice
C) Cournot justice

Question 36

The first fundamental theorem of welfare economics indicates that

A) every Pareto-optimal allocation for an economy can be achieved as a competitive equilibrium for an appropriately defined distribution of income
B) an economy should be organized so as to maximize the welfare of the least well-off person in society
C) when a competitive equilibrium exists, the allocations of inputs and outputs in the economy define a Pareto-optimal outcome

Question 37

An allocation in which no one envies the bundle of anyone else is known as a(n)

A) justice allocation
B) efficient allocation
C) envy-free allocation

Question 38

According to Rawls' maximin justice, an economy should be organized so as to maximize the welfare of the _________________ person in society.

A) least well-off
B) most well-off
C) average

Question 39

List the three beliefs on which the free-market argument rests.

Question 40

Interventionists ask whether it might not be better to sacrifice some _____________ for more _____________.

A) equity, efficiency
B) efficiency, equity
C) efficiency, extra-normal profits