Exam 12: General Equilibrium and the Efficiency of Perfect Competition

An economist has estimated that the maintenance of a public park costs $25,000 a year and that the public park generates $30,000 a year in revenue for merchants near the park. From society's point of view, the maintenance of this park is

________ is the cost of using resources to produce another unit of a good.

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S^{0 and D0.} -Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, the likely change in capital flow in sector Y will cause the industry's short-run ________ curve to shift to the ________.

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S^{0 and D0.} -Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, the likely change in capital flow in sector X will eventually

Suppose a new government policy generates $6,000 of benefits for local businesses and $4,000 of costs. We can best describe the policy as

With respect to private goods, a Pareto optimal system is one in which ________ that make(s) some societal members better off without making others worse off have (has) been exhausted.

Under perfect competition, the person that ends up with the marginal unit is the person that values it

Your next-door neighbor has a beautiful rose garden, but you are allergic to roses and cannot use your yard because of the rose pollen that drifts into your yard. In this case, the rose garden is an example of a

An externality exists when the cost or benefit resulting from some activity or transaction is experienced by parties external to the activity or transaction.

Imperfect information on the part of buyers and sellers

Refer to the information provided in Figure 12.4 below to answer the question(s) that follow. Figure 12.4 There are two sectors in the economy, X and Y, and both are in long-run, zero-profit equilibrium at the intersections of S^{0 and D0.} -Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, a new general equilibrium will eventually be reached in sector X with a price of ________ and a quantity of ________.

To conduct a partial equilibrium analysis of a change in consumer preferences toward coffee and away from tea, you must consider

Which assumption(s) is (are) necessary for an efficient allocation of resources among firms?

National defense is an example of an externality.

Society will produce the efficient mix of output if all firms equate price and marginal cost.

Which of the following questions is not answered by general equilibrium analysis?

You value your economics textbook at $10. Someone else values it at $25, and that person is willing to pay you $20 for your textbook. Would selling your textbook to this person for $20 be Pareto efficient?

Externalities are only inefficient when they impose a cost. They are not inefficient when they bestow a benefit.

Absent market imperfections, when firms ________ profits and households ________ utility Pareto optimality has been obtained.

Scientists find that eating corn three times a day will prolong life. This leads to a shift in preferences away from wheat and toward corn. As we move from one equilibrium to another, we can predict that