Exam 10: General Equilibrium and Economic Welfare

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Assuming that consumers place equal value on both of these goods and that free trade between these two countries is possible,gains from trade

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 20 units of clothing but no food.Suppose each has the utility function U = F ∗ C.Derive the contract curve.

Gains from trade will be possible as long as

How does competition ensure that the efficient product mix is attained?

Any policy change that results in a Pareto-superior allocation

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Measuring food on the horizontal axis,the joint production possibility frontier

If a market is controlled by one perfect price discriminator who is able to charge each consumer the highest price that consumer is willing to pay,the seller will produce output until the price paid by the last consumer is equal to the marginal cost of making the good.That is,the price of the last good equals the marginal cost of making the good.If welfare is measured as consumer surplus plus producer surplus,compare this market structure to a competitive market in terms of efficiency and equity.

According to the Theory of the Second Best,why might market liberalization through elimination of some market distortions,such as particular trade restrictions,lead to social welfare losses?

Suppose the government currently places tariffs and/or other import restrictions on good X.Will imposing a tariff and/or trade restriction on good Y necessarily reduce overall social welfare for the economy?

In a competitive market,prices adjust until all consumers find themselves

-The above figure depicts the Edgeworth box for two consumers,Al and Bruce.Explain why point "a" cannot be a competitive equilibrium.

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 40 units of clothing but no food.Suppose each has the utility function U = F^1/2C1/2.If the price of clothing is always $1,and the food price is currently $3,then we can conclude

For the following, please answer "True" or "False" and explain why. -Equity and efficiency can be achieved simultaneously through competition.

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Assuming free trade between these two countries,Canada will produce food

For the following, please answer "True" or "False" and explain why. -At a given point in time,the Rawlsian welfare function gives equal weight to each individual's utility.

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.If production occurs at the kink on the joint production possibility frontier,

-Suppose the production possibilities for two countries,producing either food or clothing,are shown in the above figure.They can each produce any linear combination as well.Once free trade is allowed,Canada will produce

A dictator is most likely to

Explain how it is possible for one of two people in a two-good economy to have an absolute advantage in producing both goods,but trade can still benefit both people.