Deck 16: General Equilibrium, Efficiency, and Equity

Question 1

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Find the formula for the market-clearing curve for cereal.

A)

B)

C)

D)

Answer 1

Question 2

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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)

B)

C)

D)

Answer 2

Question 3

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the price of milk in terms of the price of cereal.

A)

B)

C)

D)

Answer 3

Question 4

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Find the formula for the market-clearing curve for milk.

A)

B)

C)

D)

Question 5

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the price of cereal in terms of the price of milk.

A)

B)

C)

D)

Question 6

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 7

The market-clearing curve for substitutes is

A) Horizontal
B) Downward sloping
C) Vertical
D) Upward sloping

Question 8

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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 9

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the general equilibrium quantity of milk.

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

Question 10

General equilibrium analysis

A) Is the study of competitive equilibrium in one market
B) Illustrates the independency among markets
C) Concerns competitive equilibrium in a single market, considered in isolation
D) Is the study of competitive equilibrium in many markets

Question 11

The market-clearing curve for complementary goods is

A) Horizontal
B) Downward sloping
C) Vertical
D) Upward sloping

Question 12

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the general equilibrium price for cereal.

A) $9.76
B) $6.10
C) $0
D) $11.25

Question 13

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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 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) Illustrates equilibrium in a particular market

Question 15

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 16

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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)

B)

C)

D)

Question 17

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the general equilibrium quantity of cereal.

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

Question 18

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and stands for millions of boxes of cereal supplied.Solve for the general equilibrium price for milk.

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

Question 19

The father of general equilibrium theory is considered to be

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

Question 20

The modern treatment of general equilibrium was pioneered by

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

Question 21

The first welfare theorem

A) Tells us that, in a general equilibrium with imperfect competition, the allocation of resources is Pareto efficient
B) Clarifies how the "invisible hand" of the market guides people toward privatly desirable choices
C) Tells us that a general equilibrium with perfect competition is not Pareto efficient
D) Tells us that, in a general equilibrium with perfect competition, the allocation of resources is Pareto efficient

Question 22

A point on the utility possibility frontier is

A) Inefficient
B) Impossible
C) Efficient
D) Inefficient and Impossible

Question 23

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 24

A point inside the utility possibility frontier is

A) Inefficient
B) Impossible
C) Efficient
D) Inefficient and Impossible

Question 25

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 26

Utilitarianism

A) Was favored by Jeremy Bentham
B) Was favored by John Rawls
C) Is a process-oriented notion of equity
D) Was favored by John Nash

Question 27

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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 cereal
B) Consumers purchase less milk and cereal
C) Consumers purchase more milk and less cereal
D) Consumers purchase less milk and more cereal

Question 28

The efficient efficiency condition holds

A) If every pair of individuals have 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 consume the same quantities of every pair of goods
D) If every pair of individuals shares different marginal rate of substitution for every pair of goods

Question 29

Utilitarianism

A) Was favored by John Nash
B) Was favored by John Rawls
C) Is an process-oriented notion of equity
D) Is an outcome-oriented notion of equity

Question 30

Process-oriented notions of equity

A) Focus on the procedures used to arrive at an allocation rather than on the allocation of resources
B) Focus on whether the process used to allocate resources yields fair results
C) Focus on what people could not choose rather than what they actually choose
D) Focus on what people could choose rather than what they actually choose

Question 31

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 32

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 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

The social welfare function

A) Summarizes judgments about resource allocations
B) Assigns a number that indicates the overall level of social welfare
C) Was pioneered by Abram Bergson and Paul Samuelson
D) All of these

Question 35

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 36

Outcome-oriented notions of equity

A) Focus on the procedures used to arrive at an allocation rather than on the allocation of resources
B) Focus on whether the process used to allocate resources yields fair results
C) Include those that focus on the distribution of products
D) Focus on the procedures used to arrive at an allocation of resources rather than on the allocation itself

Question 37

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 38

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 exchange economy
C) Was first introduced by Francis Ysidro Edgeworth
D) All of these

Question 39

Suppose milk and cereal are compliments and the demand for milk is ,where stands for millions of gallons of milk demanded, stands for the price of milk and stands for the price of cereal.The supply of milk is ,where stands for millions of gallons of milk supplied.The demand and supply of cereal are and ,respectively,where stands for millions of boxes of cereal demanded and 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 both milk and cereal increase
B) The price of milk increases and the price of cereal decreases
C) The price of milk decreases and the price of cereal increases
D) The price of both milk and cereal decrease

Question 40

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 41

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) Does not pass through the tangencies between pairs of indifference curves in an Edgeworth box
D) Shows every efficient allocation of consumption goods in an Edgeworth box

Question 42

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 tangencies between pairs of isocosts in an Edgeworth box
D) Shows every inefficient allocation of inputs between two firms in an Edgeworth box

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

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 a requirement of Pareto efficiency in a consumption 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 a requirement of inefficiency in a production economy

Question 45

A point inside the production possibility frontier is

A) Inefficient
B) Impossible
C) Efficient
D) Optimal

Question 46

A market failure

A) Is a source of inefficiency in an imperfectly competitive economy
B) May not be corrected by government intervention
C) Cannot be corrected
D) May be corrected by self-selection

Question 47

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 48

The marginal rate of transformation from good X to good Y

A) Is the additional amount of X that can be produced by sacrificing one unit of Y
B) Is the ratio of a firm's marginal products
C) Is the additional amount of Y that can be consumed by sacrificing one unit of X
D) Is the ratio of a firm's marginal costs

Question 49

A point along the production possibility frontier is

A) Inefficient
B) Impossible
C) Efficient
D) Inefficient and Impossible

Question 50

A point outside of the production possibility frontier is

A) Inefficient
B) Impossible
C) Efficient
D) Inefficient and Impossible

Question 51

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 52

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