Question 1

Which of the following statements is (are) TRUE?
I. The Rawlsian social welfare function computes society's welfare by calculating the difference in utility between the top 10% and bottom 10% of income earners.
II. Economists strictly use the Rawlsian social welfare function to evaluate market performance.
III. The Rawlsian utility function only considers the utility of the least well-off person.

Accepted Answer

The Rawlsian social welfare function, based on the philosophy of John Rawls, focuses on maximizing the welfare of the least well-off member of society, not on the difference in utility between income groups or being the exclusive tool for economists to evaluate market performance.

Question 2

(Figure: Cereal and Pancakes III) Which of the following statements is (are) TRUE?  I. Pareto efficiency occurs when Elaina consumes 4 pancakes and 3 bowls of cereal and Jose consumes 4 pancakes and 7 bowls of cereal.
II) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 3 bowls of cereal.
III) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 7 bowls of cereal.

Accepted Answer

A

Question 3

Sven, Art, and Isabel reside on a tiny island in the Pacific. All three of them have a utility function given by U = Y^0.5, where Y is income per day. Suppose that Sven earns $7 per day, Art earns $25 per day, and Isabel earns $36 per day. What happens to the value of the utilitarian social welfare function If the government takes $9 of Art's income and gives it to Sven?

Accepted Answer

Given the utility function U = Y^0.5, transferring income from a richer individual (Art) to a poorer one (Sven) increases the total utility because the marginal utility of income decreases as income increases. This means that the same amount of money generates more utility for Sven than it does for Art, leading to an increase in the overall utilitarian social welfare function.

Question 4

The market for soybeans is characterized by = 16 - P_s + P_c and = P_s, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 40 - P_c + P_s and = P_c, where Q_c is the quantity of corn in millions of bushels. In general equilibrium, what is the equilibrium quantity of soybeans?

Accepted Answer

The answer of The market for soybeans is characterized by...

Question 5

The market for coffee is characterized by and , where Q_C is the quantity of coffee in hundreds of pounds, P_C is the price per hundred pounds of coffee, and P_T is the price per hundred pounds of tea. The market for tea is characterized by And , where Q_T is the quantity of tea in hundreds of pounds. Suppose a new medical study touts the benefits of drinking coffee, leading to an increase of 30 pounds of coffee at every price. The new equilibrium price of tea is ____.

Accepted Answer

The answer of The market for coffee is characterized by...

Question 6

If the initial allocation of goods is not efficient, consumers will:

Accepted Answer

In an economy, if the initial allocation of goods is not efficient, consumers will engage in trading goods at market prices. This process continues until no further trades can make someone better off without making someone else worse off, a state known as Pareto efficiency. This is achieved when the marginal rate of substitution (MRS), which is the rate at which a consumer is willing to substitute one good for another while maintaining the same level of utility, is equalized across all consumers. This equalization of MRS across consumers ensures that resources are allocated in the most efficient manner possible, where no further gains from trade are possible.

Question 7

Maximilian rules over a three-person society. The three people are Andre, Bojan, and Soumendra. Andre has a utility level of 60, Bojan's utility level is 80, and Soumendra's utility level is 10. In this society, assuming resources and utility can be transferred among the people, the highest value that the Rawlsian social welfare function can obtain is ____.

Accepted Answer

The answer of Maximilian rules over a three-person society. The...

Question 8

Which of the following is an example of partial equilibrium analysis?

Accepted Answer

Partial equilibrium analysis focuses on the equilibrium in a single market, ignoring interactions with other markets. Choice B, which examines the impact of a freeze on the orange market alone, is an example of partial equilibrium analysis.

Question 9

Farmers can use their land to grow corn or cotton. Because of the increased demand for moisture-wicking sportswear, the demand for cotton has decreased. What are the general equilibrium effects in the markets for corn and for cotton?

Accepted Answer

The decrease in demand for cotton leads to a fall in its price, prompting farmers to switch to growing more corn. This increase in corn supply will lower corn prices.

Question 10

The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _____ and can best be studied by using _____ analysis.

Accepted Answer

Dutch disease refers to the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The condition leads to increased exchange rates which can harm other sectors like manufacturing by making them less competitive internationally. General equilibrium analysis is best suited to study such economy-wide issues because it considers the interrelations between various sectors of the economy, unlike partial equilibrium analysis which focuses on one market in isolation.

Question 11

(Figure: Pancakes and Cereal I) At point G, the marginal cost of a pancake is 50 cents and the marginal cost of a bowl of cereal is also fifty cents. At this point, consumers are willing to trade 2 bowls of cereal for an additional pancake. Which of the following statements is TRUE?

Accepted Answer

The answer of (Figure: Pancakes and Cereal I) At point...

Question 12

Two legendary rock bands, The Who and Kiss, are scheduling concerts in Detroit this summer. The supply of tickets for The Who concert is fixed at 40,000 and the supply of tickets for the Kiss concert is fixed at 40,000. The demand for tickets for The Who and Kiss are given by the following equations: Who: = 100,000 - 1,000P_W + 250P_K Kiss: = 100,000 - 1,000P_K + 250P_W Where P_W is the price of a ticket for The Who and P_K is the price of a ticket for Kiss. In general equilibrium, the price of a ticket for The Who is ____.

Accepted Answer

The answer of Two legendary rock bands, The Who and...

Question 13

Goods X and Y are substitute goods. If the demand for good X increases, the price of good X will _____ and cause a(n) _____ in the demand for good Y. The _____ price for good Y will further _____ the demand for good X, while the _____ price for good X will further _____ the demand for good Y.

Accepted Answer

When the demand for good X increases, its price will increase, causing a decrease in the demand for good Y. The lower price for good Y will further increase the demand for good X, while the higher price for good X will further decrease the demand for good Y.

Question 14

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases.
General equilibrium analysis predicts a ____ effect on the equilibrium price and a ____ effect on the quantity of almonds than partial equilibrium analysis.

Accepted Answer

In general equilibrium analysis, the interconnectedness of markets is considered. An increase in demand for walnuts will lead to a higher price for walnuts, which will increase the demand for almonds as a substitute, leading to a larger effect on both the price and quantity of almonds compared to partial equilibrium analysis, which considers only one market in isolation.

Question 15

(Figure: Cereal and Pancakes IV) What is the name of curve A, and what is its significance?

Accepted Answer

The answer of (Figure: Cereal and Pancakes IV) What is...

Question 16

change their tastes and preferences via their utility function to match the market's marginal rate of substitution.
-(Figure: Roses and Guns I) Which of the following output combinations does NOT fall on the production contract curve?  I. guns, 20; roses, 2,000
II) guns, 15; roses, 2,800
III) guns, 90; roses, 750

Accepted Answer

The answer of change their tastes and preferences via their...

Question 17

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. The new number of exams ____ a Pareto improvement because ____.

Accepted Answer

A Pareto improvement occurs when a change in allocation makes at least one individual better off without making any other individual worse off. Since one student is worse off due to the cancellation of the test, it cannot be considered a Pareto improvement.

Question 18

Two legendary rock bands, The Who and Kiss, are scheduling concerts in Detroit this summer. The supply of tickets for The Who concert is fixed at 40,000 and the supply of tickets for the Kiss concert is fixed at 40,000. The demand for tickets for The Who and Kiss are given by the following equations: The Who: = 100,000 - 1,000P_W + 250P_K Kiss: = 100,000 - 1,000P_K + 250P_W Where P_W is the price of a ticket for The Who and P_K is the price of a ticket for Kiss. In general equilibrium, the price of a Kiss ticket is ____.

Accepted Answer

The answer of Two legendary rock bands, The Who and...

Question 19

The market for soybeans is characterized by = 18 - P_s and = P_s - 0.5P_c, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 18 - P_c and = P_{c -} 0.5P_s, where Q_c is the quantity of corn in millions of bushels. In general equilibrium, the equilibrium quantity of corn is _____ bushels and that of soybeans is _____ bushels.

Accepted Answer

The answer of The market for soybeans is characterized by...

Question 20

Consider a society with three people whose utilities are U_A = 40, U_B = 90, and U_C = 60. What is the value of the Rawlsian utility function?

Accepted Answer

The Rawlsian utility function is based on the principle of maximizing the welfare of the least advantaged member of society. In this case, the lowest utility among the three individuals is 40, so the value of the Rawlsian utility function is 40.

Quiz 15: General Equilibrium

If the initial allocation of goods is not efficient, consumers will:

Which of the following is an example of partial equilibrium analysis?

Farmers can use their land to grow corn or cotton. Because of the increased demand for moisture-wicking sportswear, the demand for cotton has decreased. What are the general equilibrium effects in the markets for corn and for cotton?

The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _ and can best be studied by using _ analysis.

(Figure: Pancakes and Cereal I) At point G, the marginal cost of a pancake is 50 cents and the marginal cost of a bowl of cereal is also fifty cents. At this point, consumers are willing to trade 2 bowls of cereal for an additional pancake. Which of the following statements is TRUE?

Goods X and Y are substitute goods. If the demand for good X increases, the price of good X will ___ and cause a(n) _ in the demand for good Y. The _ price for good Y will further _ the demand for good X, while the _ price for good X will further ___ the demand for good Y.

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases. General equilibrium analysis predicts a effect on the equilibrium price and a effect on the quantity of almonds than partial equilibrium analysis.

(Figure: Cereal and Pancakes IV) What is the name of curve A, and what is its significance?

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. The new number of exams a Pareto improvement because .

Consider a society with three people whose utilities are U_A = 40, U_B = 90, and U_C = 60. What is the value of the Rawlsian utility function?

Quiz 15: General Equilibrium

If the initial allocation of goods is not efficient, consumers will:

Which of the following is an example of partial equilibrium analysis?

Farmers can use their land to grow corn or cotton. Because of the increased demand for moisture-wicking sportswear, the demand for cotton has decreased. What are the general equilibrium effects in the markets for corn and for cotton?

The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _____ and can best be studied by using _____ analysis.

(Figure: Pancakes and Cereal I) At point G, the marginal cost of a pancake is 50 cents and the marginal cost of a bowl of cereal is also fifty cents. At this point, consumers are willing to trade 2 bowls of cereal for an additional pancake. Which of the following statements is TRUE?

Goods X and Y are substitute goods. If the demand for good X increases, the price of good X will _____ and cause a(n) _____ in the demand for good Y. The _____ price for good Y will further _____ the demand for good X, while the _____ price for good X will further _____ the demand for good Y.

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases. General equilibrium analysis predicts a ____ effect on the equilibrium price and a ____ effect on the quantity of almonds than partial equilibrium analysis.

(Figure: Cereal and Pancakes IV) What is the name of curve A, and what is its significance?

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. The new number of exams ____ a Pareto improvement because ____.

Consider a society with three people whose utilities are UA = 40, UB = 90, and UC = 60. What is the value of the Rawlsian utility function?

The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _ and can best be studied by using _ analysis.

Goods X and Y are substitute goods. If the demand for good X increases, the price of good X will ___ and cause a(n) _ in the demand for good Y. The _ price for good Y will further _ the demand for good X, while the _ price for good X will further ___ the demand for good Y.

Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases. General equilibrium analysis predicts a effect on the equilibrium price and a effect on the quantity of almonds than partial equilibrium analysis.

Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. The new number of exams a Pareto improvement because .

Consider a society with three people whose utilities are U_A = 40, U_B = 90, and U_C = 60. What is the value of the Rawlsian utility function?