Deck 16: General Equilibrium and Economic Efficiency 1-83

Question 1

Gasoline and bicycles are complements in consumption.Suppose we increase the federal gasoline tax to $1 per gallon.What are the initial changes that result from the tax as these markets adjust to a new general equilibrium?

A)Gasoline price rises,demand for bicycles shift s leftward.
B)Gasoline price rises,demand for bicycles shifts rightward.
C)Gasoline price rises,move downward along bicycle demand curve.
D)Gasoline price rises,move upward along bicycle demand curve.

Answer 1

B

Question 2

Gasoline and bicycles are complements in consumption.Suppose we increase the federal gasoline tax to $1 per gallon.Initially,the gasoline price rises due to the tax,and the demand curve for bicycles shifts rightward because these goods are complements.Then,the bicycle price rises,and the demand curve for gasoline shifts rightward.Assuming the general equilibrium is achieved in both markets after these two steps,which of the following statements is NOT true?

A)Partial equilibrium analysis only focuses in the first-round changes in the gasoline market (ignoring the secondary effects that arise from changes in the bicycle market).
B)Partial equilibrium analysis would predict a larger shift in the price and quantity demanded for gasoline than a general equilibrium analysis.
C)The price increase in gasoline is larger under the general equilibrium approach,but the change in the quantity of gasoline demanded is smaller than under partial equilibrium analysis.
D)All of these statements are true.

Answer 2

C

Question 3

The United States and Brazil are competitors in the world soybean market.In the late 1960s and early 1970s,the Brazilian government developed regulations designed to encourage Brazilian soybean production and exports.An unanticipated effect of the Brazilian regulations was to stimulate U.S.soybean production and exports.The type of economic analysis that would explain and predict these effects is called

A)closed economy macroeconomics.
B)international economics.
C)partial equilibrium analysis.
D)full market analysis.
E)general equilibrium analysis.

Answer 3

E

Question 4

A move from one point on a contract curve to another point on the contract curve will make

A)both individuals better off.
B)both individuals worse off.
C)one individual better off and the other individual worse off.
D)the goods more expensive.

Question 5

In a problem involving exchange,the contract curve shows

A)all exchanges that make both parties better off.
B)the one exchange that makes both parties better off.
C)all possible allocations of goods between both parties.
D)all possible efficient allocations between both parties.

Question 6

Gasoline and bicycles are complements in consumption.Suppose we increase the federal gasoline tax to $1 per gallon.Initially,the gasoline price rises due to the tax,and the demand curve for bicycles shifts rightward because these goods are complements.What are the secondary changes that result from the gasoline tax as these markets adjust to a new general equilibrium?

A)Bicycle price rises,demand for gasoline shift s leftward.
B)Bicycle price rises,demand for gasoline shifts rightward.
C)Bicycle price declines,demand for gasoline shifts leftward.
D)Bicycle price declines,demand for gasoline shifts rightward.

Question 7

Once a point on a contract curve has been chosen,

A)it is possible to make both individuals better off.
B)it is possible to make one individual better off only at the expense of the other.
C)there is no change that would make both individuals worse off.
D)it is impossible for both individuals to have more of both goods.

Question 8

General equilibrium analysis is different from partial equilibrium analysis in that general equilibrium analysis

A)explicitly takes feedback effects into account and partial equilibrium analysis does not.
B)does not take into consideration specific problems,but partial equilibrium analysis does.
C)takes into consideration specific problems,but partial equilibrium analysis does not.
D)allows one to arrive at a specific conclusion,but partial equilibrium analysis does not.

Question 9

Which of the following is true? Partial equilibrium analysis will

A)overstate the impact of a tax for both substitutes and complements.
B)understate the impact of a tax for both substitutes and complements.
C)understate the impact of a tax for complements and overstate the impact for substitutes.
D)understate the impact of a tax for substitutes and overstate the impact for complements.

Question 10

All possible efficient allocations of 2 goods between 2 people are located on

A)the indifference curve.
B)the contract curve.
C)the production possibilities frontier.
D)the budget line.

Question 11

The contract curve in an Edgeworth Box diagram illustrates

A)the only efficient allocation of goods among individuals.
B)all possible efficient allocations of goods among individuals.
C)all equitable distributions of goods among individuals.
D)the only equitable distribution of goods among individuals.

Question 12

The curve in the diagram below is called:

A)the contract curve.
B)the utility possibilities frontier.
C)the production possibilities frontier.
D)the production contract curve.

Question 13

Which of the following is true at the exchange equilibrium between two individuals?

A)Their marginal rates of substitution are equal.
B)The slopes of the individuals' indifference curves are equal.
C)Both individuals' marginal rates of substitution are equal to the ratio of the prices of the goods.
D)A and B only
E)A,B,and C are all true.

Question 14

To be certain that exchange between people is mutually beneficial,we generally assume

A)not all people are free to enter the market at will,but once in they are free to make any offer to trade.
B)all people have complete information about each other's preferences.
C)there are no transaction costs.
D)both B and C
E)both A and B

Question 15

In an Edgeworth box,all points of efficiency occur at the

A)intersections of the indifference curves.
B)the points of tangency between the sets of indifference curves.
C)in the midpoint of the diagram.
D)at any point other than the intersections of the indifference curves.

Question 16

The Edgeworth box illustrates possibilities for Karen and James to increase their satisfaction by trading goods.If point A gives the initial allocation of food and clothing,a movement into the shaded area:

A)leaves Karen better off,but James worse off.
B)leaves James better off,but Karen worse off.
C)leaves James and Karen worse off.
D)leaves James and Karen better off.

Question 17

Which of these is NOT an exercise in general equilibrium analysis?

A)A discussion of factors within the wheat market that influence wheat prices
B)An analysis of the effects of changes in oil prices upon the natural gas market
C)An evaluation of relationships between the markets for tires and automobiles
D)none of the above

Question 18

If the initial distribution of labor and capital is Pareto optimal,which of the following statements is TRUE?

A)It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good.
B)It is possible to reallocate labor and capital across industries so as to increase the production of one good,but only by reducing the production of another good.
C)It is possible to reallocate labor and capital across industries so as to increase the production of every good.
D)none of the above

Question 19

Why does perfect competition guarantee a Pareto optimal distribution of goods between two people? Under perfect competition,

A)everyone has the same preferences.
B)everyone faces the same prices.
C)everyone consumes the same quantity of both goods.
D)goods are homogeneous.

Question 20

The markets for movie theater tickets and videocassette rentals are highly interdependent.Suppose that a tax is imposed on movie theater tickets.The type of analysis that examines the effects of this tax on the markets for movie theater tickets and videocassettes simultaneously is called

A)macroeconomics.
B)general equilibrium analysis.
C)partial equilibrium analysis.
D)full market analysis.
E)psychoanalysis.

Question 21

What does the negative slope of the utilities possibilities frontier imply?

A)Diminishing marginal utility.
B)The only way to increase one person's utility is to decrease another person's utility.
C)Diminishing marginal rates of substitution.
D)The only way to increase output of one good is to decrease output of another.

Question 22

The curve in the diagram is called:

A)the contract curve.
B)the utility possibilities frontier.
C)the production possibilities frontier.
D)the production contract curve.

Question 23

When comparing point A,which lies within a utilities possibilities frontier,with point B,which lies on the same utilities possibilities frontier,

A)A is necessarily more efficient than B.
B)A is necessarily more equitable than B.
C)B is necessarily more efficient than A.
D)B is necessarily more equitable than A.

Question 24

Suppose there are 10 apples and 10 oranges in the economy.Joe is currently consuming 4 apples and 5 oranges,and Jane is consuming 6 apples and 5 oranges.At this allocation,Joe's marginal utility of apples is 3,and his marginal utility of oranges is 5.Jane's marginal utility of apples is 9.The current allocation is necessarily efficient if:

A)the price of apples is 60% of the orange price.
B)Jane's marginal utility of oranges is 6 at this point.
C)Joe's MRS equal the MRT.
D)Jane's marginal utility of oranges is 15 at this point.

Question 25

The Rawlsian view of equity would lead to:

A)equal allocations of goods across all persons.
B)maximizing the utility of the least-well-off person.
C)maximizing the total utility of all society members.
D)none of the above

Question 26

The statement: "If everyone trades in the competitive marketplace,all mutually beneficial trades will be completed,and the resulting equilibrium allocation of resources will be economically efficient." is formally known as:

A)the law of supply and demand.
B)the first theorem of supply and demand.
C)the first theorem of welfare economics.
D)the first theorem of efficiency in economics.

Question 27

A point lying beyond the utilities possibilities frontier is

A)unattainable.
B)efficient.
C)inefficient.
D)profitable.

Question 28

All points within the utilities possibilities frontier are

A)unattainable.
B)efficient.
C)inefficient.
D)profitable.

Question 29

When comparing point A,which lies within a utilities possibilities frontier,with point B,which lies on the same utilities possibilities frontier,

A)A may be more efficient than B.
B)A is necessarily more equitable than B.
C)B may be more equitable than A.
D)B is necessarily more equitable than A.

Question 30

From a point within the utilities possibilities frontier,

A)movement to another point within the frontier can only increase one person's utility,but not both people's utility.
B)it is possible to find another point within the frontier that generates higher utility for both people.
C)it is possible to find another point within the frontier that involves higher output of both goods.
D)any move to another point within the frontier will necessarily decrease someone's utility.

Question 31

Use the following statements to answer this question: I.The first theorem of welfare economics refers to efficient allocation of goods across groups of consumers,and it does not consider the problem of efficient production of these goods.
II)The only way to achieve an efficient allocation of goods is to use competitive markets.

A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are true.

Question 32

For an individual consumer,a corner solution may be optimal such that MRS and MRT are not equal,

A)but this is not possible in an Edgeworth Box due to the transitivity of preferences.
B)but this is not possible in an Edgeworth Box because price ratios must be positive.
C)and this may also occur in an Edgeworth Box.
D)and this may only occur in an Edgeworth Box under the perfect complements case.

Question 33

Locating a point on a utilities possibilities frontier gives you information about

A)both equity and efficiency.
B)equity but not efficiency.
C)efficiency but not equity.
D)profitability but not efficiency.

Question 34

Assume there are only two individuals in an economy,Lisa and Bart.The utility possibilities frontier for these individuals is given as: 120 = U_L + U_B
Where U_L is Lisa's utility and U_B is Bart's utility.Lisa's current level of utility is 20,Bart's level of utility is 90.This combination is:

A)inefficient.
B)economically efficient.
C)impossible,because it is outside of the welfare frontier.
D)none of the above

Question 35

When comparing point A,which lies within a utilities possibilities frontier,with point B,which lies on the same utilities possibilities frontier,

A)both A and B are efficient.
B)both A and B are equitable.
C)both A and B may be equitable.
D)neither A nor B could be equitable.

Question 36

Use the following statements to answer this question: I.Following the properties of indifference curves,the utility possibilities frontier should be convex to (bowed into toward)the origin.
II)The slope of the utility possibilities frontier equals -1 times the slope of the contract curve.

A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are false.

Question 37

Which of these statements is generally accepted by economists? Perfect competition

A)provides both equity and efficiency.
B)provides equity but not necessarily efficiency.
C)provides efficiency but not necessarily equity.
D)generally satisfies neither efficiency nor equity.

Question 38

The main point of the second theorem of welfare economics is that:

A)efficiency is more important than equity.
B)efficiency may be achieved,but equity is not a feasible goal.
C)any attempt to achieve an equitable outcome must occur off the contract curve.
D)any equitable outcome can be achieved by reallocating the resources among the members of a society.

Question 39

What is TRUE about every point along a utilities possibilities frontier?

A)Markets are perfectly competitive.
B)It is possible to move to from one point on the frontier to another point and make everyone better off.
C)All allocations are efficient.
D)It includes some unattainable points.

Question 40

The slope of the utility possibilities frontier is

A)positive.
B)negative.
C)zero.
D)undefined.

Question 41

The slope of the production possibilities frontier is

A)positive.
B)negative.
C)zero.
D)undefined.

Question 42

All points within the production possibilities frontier are

A)unattainable.
B)efficient.
C)inefficient.
D)profitable.

Question 43

A point lying to the northeast of the production possibilities frontier is

A)unattainable.
B)efficient.
C)inefficient.
D)profitable.

Question 44

In an economy which produces two goods X and Y,using two inputs L and K,efficient input use occurs when

A)MRTS_LK^X = MRS_LK^Y
B)MRT_XY = MRS_XY
C)MRS_X/P_X = MRS_Y/P_Y
D)MRTS_LK^X = MRTS_LK^Y

Question 45

Use the following statements to answer this question. I.There are potential gains from trade when the economies of two countries differ so that one country has an absolute advantage in producing one good,while the second country has an absolute advantage in producing another good.
II)A country has an absolute advantage in producing a good if its cost is lower than the cost in another country.

A)Both I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)Both I and II are false.

Question 46

What does the negative slope of the production possibilities frontier imply?

A)Diminishing marginal utility.
B)The only way to increase one person's utility is to decrease the other's.
C)Diminishing marginal rates of technical substitution.
D)The only way to increase output of one good is to decrease output of another.

Question 47

Canada produces MP3 players and lumber,and the marginal costs for the two products are $200 per 1,000 board-feet of lumber and $100 per MP3 player.China also produces these goods,and the marginal costs are $300 per 1,000 board-feet of lumber and $100 per MP3 player.Which country has the comparative advantage in lumber production?

A)Canada
B)China
C)Both countries share the comparative advantage.
D)We need more information to answer this question.

Question 48

From any point within the production possibilities frontier,

A)the only way to increase production of one good is to decrease production of the other.
B)it is possible to increase both people's utility.
C)it is possible to increase output of both goods.
D)any move will necessarily decrease production of some good.

Question 49

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:
Table 16.1
Hours of Labor Required to Produce
Refer to Table 16.1.Which of the following statements is correct?

A)There are potential gains from trade if: (1)Mexico specializes in the production of tomatoes,(2)Guatemala specializes in the production of beer,and (3)Mexico trades tomatoes to Guatemala for beer.
B)There are potential gains from trade if: (1)Mexico specializes in the production of beer,(2)Guatemala specializes in the production of tomatoes,and (3)Mexico trades beer to Guatemala for tomatoes.
C)There are no potential gains from trade because Mexico has an absolute advantage in the production of beer and tomatoes.
D)There are no potential gains from trade because Guatemala has an absolute advantage in the production of beer and tomatoes.

Question 50

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:
Table 16.1
Hours of Labor Required to Produce
Refer to Table 16.1.Use the following statements to answer this question. I.Trade between Mexico and Guatemala will allow Mexico to consume a combination of tomatoes and beer outside of Mexico's production possibilities frontier.
II)Trade between Mexico and Guatemala will allow Guatemala to consume a combination of tomatoes and beer outside of Guatemala's production possibilities frontier.

A)Both I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)Both I and II are false.

Question 51

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:
Table 16.1
Hours of Labor Required to Produce
Refer to Table 16.1.Use the following statements to answer this question. I.Mexico has an absolute advantage in the production of tomatoes and beer.
II)Mexico has a comparative advantage in the production of tomatoes.

A)Both I and II are true.
B)I is true,and II is false.
C)I is false,and II is true.
D)Both I and II are false.

Question 52

What is TRUE about every point along a production possibilities frontier?

A)Both people are maximizing utility.
B)It is impossible to increase production of either good.
C)All allocations are efficient.
D)It includes some unattainable points.

Question 53

Which of the following is not a cause of market failure?

A)Incomplete information
B)Externalities
C)Individuals acting according to their own self-interest
D)Public goods

Question 54

Why is the production possibilities frontier concave to (bowed away from)the origin?

A)Consumers have declining marginal utility,so their relative satisfaction from consuming a good changes as they move from high levels to low levels of consumption.
B)The shape of the curve is due to the marginal costs of producing the two goods.At high levels of output for a particular good,the marginal cost is very high,and the firm can use the same inputs to produce a relatively large quantity of the other good.
C)For a production possibilities frontier,we no longer assume firms are price takers,and the input prices and output prices change as the firms alter their mix of outputs.
D)none of the above

Question 55

The following table summarizes the production relationships in Mexico and Guatemala to produce tomatoes and beer:
Table 16.1
Hours of Labor Required to Produce
Refer to Table 16.1.Which of the following statements is TRUE?

A)Guatemala has an absolute advantage in producing tomatoes.
B)Guatemala has an absolute advantage in producing beer.
C)Guatemala has a comparative advantage in producing beer.
D)Guatemala has a comparative advantage in producing tomatoes.
E)all of the above

Question 56

Which of the following is a condition for efficiency in the output market?

A)MRT = MP_L/MP_K
B)The marginal rate of substitution is the same for all customers.
C)The marginal rate of technical substitution must be the same for all producers.
D)The marginal rate of transformation must equal the marginal rate of substitution.

Question 57

A competitive equilibrium is efficient in the production and exchange of two goods X and Y when

A)MRS_xy = MRT_LK (where L = labor input and K = capital input).
B)MRT_xy = MRS_LK (where L = labor input and K = capital input).
C)MRSxy = MRTxy.
D)MC_X/MC_Y = P_Y/P_X.

Question 58

The slope of the production possibilities frontier is defined to be the marginal rate of

A)transformation.
B)technical substitution.
C)substitution.
D)profit.

Question 59

Suppose an economy produces milk and honey,and milk is plotted along the horizontal axis of the production possibilities frontier.If the production in the economy is centrally planned (and not market oriented)so that the MRS for the current production level is 3 but the MRT is 2,then there will be an excess __________ for milk and an excess __________ for honey.

A)demand,supply
B)demand,demand
C)supply,demand
D)supply,supply
E)The market is in equilibrium,and there are no imbalances in supply or demand.

Question 60

The condition that requires MRTS for each input pair to equal the ratio of their marginal costs is known as __________ efficiency,and the condition that requires MRS for each output pair to equal their output price ratio is known as __________ efficiency.

A)economic,market
B)micro,macro
C)cost,revenue
D)technical,output

Question 61

Sarah and Jane are two representative individuals living in an economy that produces two goods,X and Y.Sarah's and Jane's utility functions are given as:
Sarah: U^S = 100X^0.5Y^0.5
Jane: U^J = 50X^0.4Y^0.6
The market determined prices of X and Y are $10 and $20,respectively.Current outputs are 58 units of X per time period and 36 units of Y.Jane's current income is $600 per time period,while Sarah's income is $700 per time period.
a.Write expressions for Sarah and Jane's marginal rates of substitution.
b.Determine the quantities of X and Y that Sarah and Jane should consume in equilibrium.
c.Do the values calculated in part (b)satisfy the conditions for equilibrium in exchange? Explain using numbers.
d.Examine your answers in parts (b)and (c).If equilibrium has not been achieved,what would be necessary to reach equilibrium? If equilibrium has been achieved,comment on the process by which equilibrium was reached.

Question 62

Consider a competitive market in which people consume at the point where their marginal rates of substitution between products X and Y are 3/5.In this same market,producers produce where their marginal rates of transformation between X and Y are also 3/5.However,producers are producing 7 of Y and 3 of X,and consumers wish to consume 5 of Y and 5 of X per unit of time.Explain how this situation can exist.Also determine if it represents an equilibrium or not.If not an equilibrium,what will tend to happen in the market?

Question 63

Suppose MRTS is not the same across all producers.In this case,the economic outcome is not fully efficient because:

A)exchange is inefficient.
B)the use of inputs in production is inefficient.
C)the mix of outputs in inefficient.
D)none of the above

Question 64

If one of the agents in an Edgeworth Box has monopoly power and maximizes profit as the sole seller,then the economic outcome is:

A)inefficient because the monopoly has no incentive to be technically efficient.
B)inefficient because the monopoly produces less than the optimal amount of output.
C)Both A and B are correct.
D)none of the above

Question 65

Suppose MRS is not the same across all consumers.In this case,the economic outcome is not fully efficient because:

A)exchange is inefficient.
B)the use of inputs in production is inefficient.
C)the mix of outputs in inefficient.
D)none of the above

Question 66

The United States and Mexico recently negotiated a trade agreement that eliminated many of the restrictions on trade between the two countries.
a.Using the tools of microeconomics,describe how such an agreement will benefit both the USA and Mexico.
b.Will everyone benefit from such an agreement? who stands to lose from such an agreement.Why?

Question 67

Canada produces MP3 players and lumber,and the horizontal axis for Canada's production possibilities frontier represents the amount of lumber produced.Canada's borders are not initially open to trade,and the country consumes along its production possibilities frontier where the MRT and MRS equal the price ratio for the two products ($200 per 1,000 board-feet of lumber versus $100 per MP3 player).If Canada opens its borders to trade with China at world prices for the two goods ($300 per 1,000 board-feet of lumber and $100 per MP3 player),what happens in the Canadian economy?

A)Canada will shift consumption along the original production possibilities frontier until MRT equals the world price ratio,and Canadians will consume less lumber and more MP3 players.
B)Canada will shift consumption along the original production possibilities frontier until MRT equals the world price ratio,and Canadians will consume more lumber and less MP3 players.
C)Canada will be able to trade with China,and the gains from trade allow Canada to afford bundles of the two goods that do not lie along the country's production possibilities frontier.
D)Canada may trade with China,but we do not have enough information to determine how the opening of the border will affect the trade decisions.

Question 68

Use the following statements to answer this question: I.Incomplete information may lead to economic inefficiencies if consumers do not understand the complete set of benefits associated with a particular product.
II)Market power can lead to economic inefficiency,but only if the power is held by sellers and not by buyers (e.g.,monopsony).

A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are false.

Question 69

Imagine a primitive society in which there are two goods: food and shelter.The utility functions for two representative members of the society,Jane and Paul,are given below.
Jane's utility function:
U^J = 25F^0.5S^0.5
Paul's utility function:
U^P = 50F^0.75S^0.25
where F = units of food,and S = units of shelter.
a.Determine the marginal rate of substitution for each individual.
b.The current prices of food and shelter are $12 and $6,respectively.Determine the proportions in which Jane and Paul should consume food and clothing to achieve an exchange equilibrium.

Question 70

On the planet Economus,there are only two goods in the economy.One of the goods is econoapples.The quantity supplied of econoapples is fixed at 30.The second type of good is the econoseed.The quantity supplied of econoseeds is fixed at 60.The demand for econoapples is: The demand for econoseeds is: Determine the equilibrium price and quantity of each good in the Economus economy.

Question 71

An economy produces outputs X and Y using inputs L and K.Which of the following is NOT required for economic efficiency?

A)MRTS_LK = MRS_XY for all producers and consumers.
B)MRT_XY = MRS_XY for all producers and consumers.
C)MRS_XY is equal for all consumers.
D)MRTS_LK is equal for all producers.
E)None of the above.All of these are required for economic efficiency.

Question 72

The industry analysts have long recognized that there is a high degree of complementarity between automobile tires and gasoline.A recent study done by an automobile industry trade group estimated the following supply and demand functions:
Q_D^T = 5,250,000 - 12,500P^T - 750,000P^G
Q_S^T = -350,000 + 11,750P^T
Q_D^G = 80,500,000 - 30,000,000P^G - 2,500P^T
Q_S^G = 35,000,000 + 15,000,000P^G,
where O_D^T and Q_S^T refer to quantities of tires demand and supplied each month measured in sets of four,Q_D^G and Q_S^G refer to quantities of gasoline demanded and supplied each month measured in gallons,P^G is the price of gasoline per gallon,and P^T is the price per set of four tires.
a.Calculate the equilibrium price and quantity that will prevail in both the tire
and gasoline markets.(Hint: recall that Q_D must equal Q_S in each market.)
b.Assume that a recession causes the demand curve for gasoline to shift leftward as follows:
Q_D^G = 76,000,000 - 30,000,000P^G - 2,500P^T
Calculate the initial impact of this change in demand on the gasoline and tire markets.(You need calculate only one change in P and Q for each market.)
c.Discuss the changes that will occur after the initial round to move each market back to a stable equilibrium.Your answer to part (c)requires no calculations,but graphs would help convey your understanding of the process.

Question 73

Externalities can lead to inefficient economic outcomes because:

A)firms do not have to pay the full cost associated with using inputs that cause pollution.
B)firms that produce public goods tend to be monopolies.
C)Both A and B are correct.
D)none of the above

Question 74

One day when Gilligan was diving in the lagoon he came across a gigantic oyster.Gilligan loved raw oysters so he pried the mollusk from the rocks and hastily came ashore.When he pried open the oyster he was surprised to find a huge gray pearl.
Gilligan was thrilled at the sight of the large pearl and his immediate thought was to go and tell his friends about it.But then he reconsidered.To whom would he give the pearl? He thought it was pretty,but owning the pearl would not give him any satisfaction.When he thought about it,he realized that the Skipper,Mr.and Mrs.Howell,the Professor,Ginger and MaryAnn would all like to have the pearl.
What should he do? He could not give the one pearl to all of his friends.Maybe he could find some more pearls.With this in mind he dove back into the lagoon and returned to the spot where he found the large oyster.Much to his surprise,barely hidden from view was a small colony of oysters.He pried each of them from the rocks and took them all ashore.Inside of each oyster he found a large pearl.Each pearl was as beautiful as the one that he had first discovered.When he had finished opening the oysters he counted his pearls."One,two,three,four,five.That's it five pearls." But that's not enough.He did not need a pearl for himself,but he had six friends and only five pearls.Gilligan thought about this problem at least an hour.He finally stood and threw all five pearls back into the lagoon."If everyone cannot have a pearl,then no one should have a pearl," he thought to himself as he watched the ripples from the pearls spread out across the lagoon.
a.Define Pareto optimality.
b.Was Gilligan's solution to his problem Pareto optimal? If so,explain why.If not,explain why not.

Question 75

Two individuals,A and B,are free to engage in trade of clothing and food.Initially,A has 12 units of clothing and 9 units of food,and B has 8 units of clothing and 11 units of food.The individuals have the following utility functions in clothing C and food F:
U_A = 0.15Q_C ∙ Q_F
U_B = 0.08Q_C ∙ Q_F
where Q_F represents units of food,Q_C represents units of clothing,and U represents utility.Determine if a mutually beneficial trade is possible between A and B.If so,who would trade for what?

Question 76

Consider a potential,voluntary exchange between two people.Assume that both people have complete information about each other's preferences and that there are no transaction costs.Consumers A and B have between them 9 units of X and 15 units of Y.Initially,A has 6 of X and 10 of Y,and B has 3 of X and 5 of Y.Consumer A's marginal rate of substitution of X for Y is 2 and B's marginal rate of substitution of X for Y is 1/3.Is there room for a mutually beneficial,voluntary exchange? Determine which consumer would trade for more X and which consumer would trade for more Y.If trade takes place,can you explain the terms of trade?

Question 77

Assume that two individuals,A and B,are willing to trade products X and Y.Before a possible trade,A has the following marginal rates of substitution of X for Y (or of Y for X):
MRS_XY^A = 0.80 (or equivalently,MRS_YX^A = 1.25).
Also,before a possible trade,B has these marginal rates of substitution of X for Y
(or of Y for X):
MRS_XY^B = 1.50 (or equivalently,MRS_YX^B = 0.67).
Determine if trade can take place that would benefit either or both.If trade can benefit either or both,determine who will trade for what.

Question 78

Two individuals,Dave and Bob,consume two goods,X and Y.The utility functions for the two individuals are given as:
Bob's utility function:
U_B = 30X^0.25Y^0.75
Dave's utility function:
U_D = 50X^0.5Y^0.5
Bob is currently consuming 5 units of X and 10 units of Y.Dave is currently consuming 12 units of X and 8 units of Y.The current prices of X and Y are $10 and $15,respectively.
a.Determine the marginal rate of substitution for each individual.
b.In light of the information given above,have the two individuals achieved exchange equilibrium? Would it be possible to make one individual better off without harming the other? If the individuals have achieved exchange equilibrium,are other equilibrium combinations of X and Y between the individuals possible?

Question 79

Canada produces MP3 players and lumber,and the horizontal axis for Canada's production possibilities frontier represents the amount of lumber produced.Canada's borders are not initially open to trade,and the country consumes along its production possibilities frontier where the MRT and MRS equal the price ratio for the two products ($200 per 1,000 board-feet of lumber versus $100 per MP3 player).If Canada opens its borders to trade with China at world prices for the two goods ($300 per 1,000 board-feet of lumber and $100 per MP3 player),what trade pattern develops for Canada?

A)Canada will import lumber and MP3 players
B)Canada will import lumber and export MP3 players
C)Canada will export lumber and import MP3 players
D)Canada import lumber and MP3 players

Question 80

On the planet Economus,there are only two goods in the economy.One of the goods is econoapples.The quantity supplied of econoapples is fixed at 30.The second type of good is the econoseed.The quantity supplied of econoseeds is fixed at 60.The demand for econoapples is: The demand for econoseeds is: If the Economus world government institutes a tax of $1 on the price of econoapples,what is the effect on the amount econoapple consumers pay? Determine the equilibrium price and quantity of each good in the Economus economy.