Question 1

Pareto points in the Edgeworth Box are

Accepted Answer

A)   found when utility curves are tangent.
B)   found when MRS are equal.
C)   found when one person cannot be made better off without making another person worse off.
D)   all of these answer options are correct.
E)   none of these answer options are correct. D

Question 2

Consider an Edgeworth economy where there are two citizens,Mr.Cortopassi and Ms.Thomas.There are only two goods to be consumed in the economy,Beer and Pretzels.The total amount of Beer is 12 units.The total amount of Pretzels is 12 units.Answer the following: Suppose Mr.Cortopassi has utility for the two goods characterized as U_C(B,P)= B + P.Ms.Thomas's utility function is U_T(B,P)= B + P.Identify the points that are Pareto efficient.

Accepted Answer

Since the MRSs of the two are equal at every point in the Edgewood Box,every point is Pareto.

Question 3

The Second Fundamental Theorem of Welfare Economics requires

Accepted Answer

A)   that indifference curves be convex to the origin.
B)   that isoquants be concave to the origin.
C)   that there are no set prices for Pareto efficient allocations.
D)   that production be twice as large as consumption.
E)   all of these answer options are correct. A

Question 4

The contract curve is the collection of points where utility curves are tangent in the Edgeworth box.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 5

When the First Fundamental Theorem of Welfare Economics doesn't hold,there is a market failure.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 6

Suppose that a competitive firm's marginal cost of producing output q is given by MC = 5 + 2q.Assume that the market price of the firm's product is $27.What level of output will the firm produce?

Accepted Answer

The answer of Suppose that a competitive firm's marginal cost...

Question 7

Points outside the production possibility frontier are

Accepted Answer

A)   producible.
B)   endowment points.
C)   consumer equilibrium points.
D)   unattainable.

Question 8

Marginal cost of a product is the incremental cost of one additional unit of input.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 9

The First Fundamental Theorem of Welfare Economics requires

Accepted Answer

A)   producers and consumers to be price takers.
B)   that there be a market for every commodity.
C)   that the economy operate at some point on the utility possibility curve.
D)   all of these answer options are correct.

Question 10

Normative economics is more important than positive economics.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 11

Points on the utility possibility frontier are

Accepted Answer

A)   inefficient.
B)   points of incomplete preferences.
C)   not producible.
D)   Pareto.

Question 12

Market failure can occur when

Accepted Answer

A)   monopoly power exists in the market.
B)   markets are missing.
C)   consumers can influence prices.
D)   all of these answer options are correct.

Question 13

Social welfare functions can be formed in many ways.They can be additive,meaning that the all utilities curves are added together.They incorporate the idea of least-best,meaning that the utility of the person with the least is maximized.If you were a central planner for an economy,what type of social welfare function would you create?

Accepted Answer

The answer of Social welfare functions can be formed in...

Question 14

If the market does not allocate resources perfectly,the government can.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 15

In equilibrium,the MRT should not equal the MRS of all individuals.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 16

The absolute value of the slope of the production possibilities curve is the

Accepted Answer

A)   marginal rate of substitution.
B)   contract curve.
C)   offer curve.
D)   Engel curve.
E)   marginal rate of transformation.

Question 17

Social indifference curves are the same as a Social Welfare Function.

Accepted Answer

A)   True
B)   False
C)   Uncertain

Question 18

A public good is

Accepted Answer

A)   a good that the public must pay for.
B)   nonexcludable in consumption.
C)   more costly than a private good.
D)   paid for by the government.

Question 19

The Edgeworth Box should

Accepted Answer

A)   lie inside the PPF.
B)   lie partially inside the PPF.
C)   lie completely outside of the PPF.
D)   never touch the PPF.

Question 20

Imagine a simple economy with only two people,Leroy and Percy.If the Social Welfare Function is W = U_L + U_P,and the Utility Possibilities Frontier is UPF = U_L + 2U_P,what will be the societal optimum?

Accepted Answer

The answer of Imagine a simple economy with only two...

Exam 3: Tools of Normative Analysis

Pareto points in the Edgeworth Box are

The Second Fundamental Theorem of Welfare Economics requires

The contract curve is the collection of points where utility curves are tangent in the Edgeworth box.

When the First Fundamental Theorem of Welfare Economics doesn't hold,there is a market failure.

Suppose that a competitive firm's marginal cost of producing output q is given by MC = 5 + 2q.Assume that the market price of the firm's product is $27.What level of output will the firm produce?

Points outside the production possibility frontier are

Marginal cost of a product is the incremental cost of one additional unit of input.

The First Fundamental Theorem of Welfare Economics requires

Normative economics is more important than positive economics.

Points on the utility possibility frontier are

Market failure can occur when

If the market does not allocate resources perfectly,the government can.

In equilibrium,the MRT should not equal the MRS of all individuals.

The absolute value of the slope of the production possibilities curve is the

Social indifference curves are the same as a Social Welfare Function.

A public good is

The Edgeworth Box should

Imagine a simple economy with only two people,Leroy and Percy.If the Social Welfare Function is W = UL + UP,and the Utility Possibilities Frontier is UPF = UL + 2UP,what will be the societal optimum?

Imagine a simple economy with only two people,Leroy and Percy.If the Social Welfare Function is W = U_L + U_P,and the Utility Possibilities Frontier is UPF = U_L + 2U_P,what will be the societal optimum?