Deck 16: General Equilibrium, Efficiency, and Equity

Question 1

The market-clearing curve for complementary goods is:

A) horizontal.
B) downward-sloping.
C) vertical.
D) upward-sloping.

Answer 1

B

Question 2

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.The supply function for milk becomes:

A) Q^s_m = 4P_m - 6.
B) Q^s_m = 6P_m - 6.
C) Q^s_m = 6P_m - 20.
D) Q^s_m = 6P_m - 10.

Answer 2

C

Question 3

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Which of the following gives the price of milk in terms of the price of cereal?

A) P_m = 4 - (P_c/6)
B) P_m = (32/12) - (P_c/6)
C) P_m = (32 - 2P_c)/12
D) P_m = (32/12) + (P_c/6)

Answer 3

A

Question 4

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.What is the general equilibrium quantity of cereal?

A) 20.5 million boxes
B) Zero boxes
C) 38.8 million boxes
D) 46.25 million boxes

Question 5

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.The formula for the market-clearing curve for milk after the tax is:

A) P_m = 4 - (P_c/6).
B) P_m = 5 - (P_c/6).
C) P_m = 5 + (P_c/6).
D) P_m = 2 - (P_c/6).

Question 6

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Which of the following gives the price of cereal in terms of the price of milk?

A) P_c = 100 - (P_m/10)
B) P_c = 8 - (P_m/10)
C) P_c = 10 - (P_m/10)
D) P_c = 10 + (P_m/10)

Question 7

The father of general equilibrium theory is considered to be:

A) Kenneth Arrow.
B) Gerard Debreu.
C) Leon Walras.
D) John Nash.

Question 8

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.What is the general equilibrium price for milk?

A) $9.76
B) $2.37
C) $5.63
D) $4.00

Question 9

The market-clearing curve for substitutes is:

A) horizontal.
B) downward-sloping.
C) vertical.
D) upward-sloping.

Question 10

General equilibrium analysis:

A) is the study of competitive equilibrium in many markets.
B) illustrates the dependence among markets.
C) concerns competitive equilibrium in a single market, considered in isolation.
D) was pioneered by Nobel laureate Vernon Smith.

Question 11

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.The new general equilibrium price of cereal is:

A) $9.66.
B) $9.76.
C) $7.76.
D) $11.76.

Question 12

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.What is the general equilibrium price for cereal?

A) $9.76
B) $6.10
C) $0.00
D) $11.25

Question 13

Partial equilibrium analysis:

A) concerns competitive equilibrium only in the factor markets.
B) concerns competitive equilibrium only in the product markets.
C) concerns competitive equilibrium in a single market, considered in isolation.
D) is the study of competitive equilibrium in many markets at the same time.

Question 14

A market-clearing curve for a good:

A) shows the quantities supplied and demanded for a particular product.
B) shows the combinations of prices, both for that good and for other related goods, that bring supply and demand for the good into balance.
C) shows the quantities supplied and demanded for all goods.
D) shows equilibrium in a particular market.

Question 15

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Which of the following gives the market-clearing curve for milk?

A) P_m = 4 - (P_c/6)
B) P_m = (32/12) - (P_c/6)
C) P_m = (32 - 2P_c)/12
D) P_m = (32/12) + (P_c/6)

Question 16

The modern treatment of general equilibrium was pioneered by:

A) Kenneth Arrow and Gerard Debreu.
B) Gerard Debreu and Leon Walras.
C) Leon Walras and John Nash.
D) John Nash and Kenneth Arrow.

Question 17

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Which of the following gives the market-clearing curve for cereal?

A) P_c = 100 - (P_m/10)
B) P_c = 8 - (P_m/10)
C) P_c = 10 - (P_m/10)
D) P_c = 10 + (P_m/10)

Question 18

General equilibrium analysis:

A) concerns competitive equilibrium only in the factor markets.
B) concerns competitive equilibrium only in the product markets.
C) concerns competitive equilibrium in a single market, considered in isolation.
D) is the study of competitive equilibrium in many markets at the same time.

Question 19

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.What is the general equilibrium quantity of milk?

A) 6.22 million gallons
B) 1.48 million gallons
C) Zero gallons
D) 50.56 million gallons

Question 20

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.The new general equilibrium price of milk is:

A) $2.37.
B) $4.37.
C) $0.37.
D) $3.39.

Question 21

An allocation of resources is Pareto efficient if it is:

A) possible to make at least one consumer better off without making someone else worse off.
B) possible to make all consumers better off.
C) impossible to make any consumer better off without making someone else worse off.
D) impossible to make any consumer better off without making everyone worse off.

Question 22

In an exchange economy:

A) people produce goods, but do not own or trade them.
B) people own and trade goods, but no production takes place.
C) people produce, own and trade goods.
D) people trade goods, but do not own them or produce them.

Question 23

Each of the following statements is true regarding the social welfare function EXCEPT:

A) it summarizes judgments about resource allocations.
B) it assigns a number that indicates the overall level of social welfare.
C) it was pioneered by Abram Bergson and Paul Samuelson.
D) it is generally viewed as very weak economic theory.

Question 24

Outcome-oriented notions of equity:

A) focus on the procedures used to arrive at an allocation of resources rather than on the allocation itself.
B) focus on whether the process used to allocate resources yields fair results.
C) include process-oriented notions of equity.
D) focus on what people could choose rather than what they actually choose.

Question 25

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.In the new general equilibrium:

A) consumers purchase more milk and more cereal.
B) consumers purchase less milk and less cereal.
C) consumers purchase more milk and less cereal.
D) consumers purchase less milk and more cereal.

Question 26

The most commonly used notion of economic efficiency originated in the writings of:

A) John Nash.
B) Kenneth Arrow.
C) Gerard Debreu.
D) Vilfredo Pareto.

Question 27

The Edgeworth box:

A) is a diagram that shows two consumers' opportunities and choices in a single figure.
B) can be used to illustrate equilibrium in a simple economy with no exchange.
C) was first introduced by Paul Samuelson.
D) shows the most worthy outcomes at the edges.

Question 28

Process-oriented notions of equity:

A) focus on the procedures used to arrive at an allocation of resources as well as on the allocation itself.
B) focus on whether the process used to allocate resources yields fair results.
C) focus on what people could choose rather than what they actually choose.
D) focus on what people actually choose, regardless of the choices available.

Question 29

According to the principle of utilitarianism:

A) society should place equal weight on the well-being of every individual.
B) society should place all weight on the well-being of its worst-off member.
C) society should place all weight on the well-being of its best-off member.
D) equal division of society's resources among all members of the population is the most equitable outcome.

Question 30

Utilitarianism:

A) is both process- and outcome-oriented.
B) is neither process- nor outcome-oriented.
C) is not a process-oriented notion of equity.
D) is not an outcome-oriented notion of equity.

Question 31

An endowment:

A) is the bundle of goods an individual starts out with before trading.
B) is the bundle of goods an individual ends up with after trading.
C) is the bundle of goods an individual inherits.
D) is the bundle of goods and individual donates.

Question 32

The exchange efficiency condition holds:

A) if every pair of individuals has inverse marginal rates of substitution for every pair of goods.
B) if every pair of individuals shares the same marginal rate of substitution for every pair of goods.
C) if every pair of individuals consumes the same quantities of every pair of goods.
D) if every pair of individuals have the same level of utility.

Question 33

According to the principle of egalitarianism:

A) society should place equal weight on the well-being of every individual.
B) society should place all weight on the well-being of its worst-off member.
C) society should place all weight on the well-being of its best-off member.
D) equal division of society's resources among all members of the population is the most equitable outcome.

Question 34

Utilitarianism:

A) was favored by John Nash.
B) was favored by John Rawls.
C) is an outcome-oriented notion of equity.
D) is a process-oriented notion of equity.

Question 35

A point inside the utility possibility frontier is:

A) inefficient.
B) impossible.
C) efficient.
D) desirable.

Question 36

The first welfare theorem:

A) tells us that, in a general equilibrium with perfect competition, the allocation of resources is Pareto efficient.
B) clarifies how the "invisible hand" of the market guides people toward socially undesirable choices.
C) tells us that a general equilibrium with perfect competition is not Pareto efficient.
D) is also the only welfare theorem.

Question 37

Suppose milk and cereal are compliments and the demand for milk is Q^d_m = 40 - 6P_m - 2P_c,where Q^d_m stands for millions of gallons of milk demanded,P_m stands for the price of milk and P_c stands for the price of cereal.The supply of milk is Q^s_m = 6P_m - 8,where Q^s_m stands for millions of gallons of milk supplied.The demand and supply of cereal are Q^d_c = 90 - 5P_c - P_m and Q^s_c = 5P_c - 10,respectively,where Q^d_c stands for millions of boxes of cereal demanded and Q^s_c stands for millions of boxes of cereal supplied.Suppose the government imposes a $2.00 per gallon tax on milk.In the new general equilibrium:

A) the price of milk and the price of cereal are both higher.
B) the price of milk is higher and the price of cereal is lower.
C) the price of milk is lower and the price of cereal is higher.
D) the price of milk and the price of cereal are both lower.

Question 38

A point on the utility possibility frontier is:

A) inefficient.
B) impossible.
C) efficient.
D) undesirable.

Question 39

According to the principle of Rawlsianism:

A) society should place equal weight on the well-being of every individual.
B) society should place all weight on the well-being of its worst-off member.
C) society should place all weight on the well-being of its best-off member.
D) equal division of society's resources among all members of the population is the most equitable outcome.

Question 40

The principle of equal opportunity is an example of:

A) an outcome-oriented notion of equity.
B) a process-oriented notion of equity.
C) utilitarianism.
D) Rawlsianism.

Question 41

A point inside the production possibility frontier is:

A) inefficient.
B) impossible.
C) efficient.
D) optimal.

Question 42

The input efficiency condition:

A) holds if at least one pair of firms share the same marginal rate of technical substitution between every pair of inputs.
B) holds if at least one pair of consumers share the same marginal rate of substitution between two goods.
C) holds if every pair of firms share the same marginal rate of technical substitution between every pair of inputs.
D) holds if every pair of firms share the same marginal rate of substitution between two goods.

Question 43

An allocation satisfies the output efficiency condition if:

A) for every pair of goods, every input's marginal product equals the marginal rate of transformation.
B) for every pair of goods, every consumer's marginal rate of substitution equals the marginal rate of transformation.
C) only applies for firms that produce the same product.
D) only applies for consumers that consume the same goods.

Question 44

The marginal rate of transformation from good X to good Y:

A) is the sum of a firm's marginal products.
B) is the ratio of a firm's marginal products.
C) is the product of a firm's marginal products.
D) is the difference between a firm's marginal products.

Question 45

Discuss the second welfare theorem.How can societies use competitive markets to achieve both efficiency and equity?

Question 46

A point outside of the production possibility frontier is:

A) inefficient.
B) impossible.
C) efficient.
D) on the contract curve.

Question 47

A point along the production possibility frontier is:

A) inefficient.
B) impossible.
C) efficient.
D) utility-maximizing.

Question 48

Compare and contrast the principles of utilitarianism,Rawlsianism and egalitarianism.Discuss the assumptions of each and the difficulties societies might face while trying to conform to them.

Question 49

The idea that every Pareto efficient allocation is the competitive equilibrium for some initial allocation of resources is known as:

A) the first welfare theorem.
B) the second welfare theorem.
C) the third welfare theorem.
D) the exchange efficiency condition.

Question 50

A market failure:

A) is a source of inefficiency in an imperfectly competitive economy.
B) can always be corrected by government intervention.
C) cannot be corrected.
D) is a theoretical proposition that has never been proven to exist.

Question 51

Lump sum transfers ________ because they _______.

A) compromise efficiency; distort choices
B) don't compromise efficiency; distort choices
C) compromise efficiency; don't distort choices
D) don't compromise efficiency; don't distort choices

Question 52

The production contract curve:

A) shows every efficient allocation of inputs between two firms in an Edgeworth box.
B) shows every efficient allocation of consumption goods in an Edgeworth box.
C) passes through the intersections between all pairs of isoquants in an Edgeworth box.
D) passes through the intersections between all pairs of indifference curves in an Edgeworth box.

Question 53

Each of the following is a challenge that society's would face in trying to use the second welfare theorem to achieve equity without sacrificing efficiency EXCEPT:

A) endowments aren't always easily observable.
B) wealth isn't an endowment.
C) lump-sum transfers distort choices.
D) transfers based on wealth aren't lump-sum transfers.

Question 54

One consequence of the second welfare theorem is the fact that the allocation of goods achieved through competitive markets:

A) is always Pareto efficient.
B) can be extremely inequitable.
C) satisfies the conditions of egalitarianism.
D) is free of market failures.

Question 55

The contract curve:

A) shows the unique Pareto efficient allocation of a pair of goods in an Edgeworth box.
B) shows every inefficient allocation of consumption goods in an Edgeworth box.
C) passes through the tangencies between pairs of indifference curves in an Edgeworth box.
D) passes through every intersection between pairs of indifference curves in an Edgeworth box.

Question 56

Input efficiency:

A) means that holding constant the total amount of each input used in the economy, there is no way to increase any firm's output without decreasing the output of another firm.
B) is not a requirement of Pareto efficiency in a production economy.
C) exists when it is possible to produce more of one good and at least as much of every other good using the same inputs.
D) is the same as efficient efficiency.

Question 57

A society can use competitive markets to achieve efficiency without sacrificing equity if it can:

A) derive its social welfare function.
B) reallocate the society's goods.
C) eliminate market failures.
D) change the initial distribution of resources.