Exam 10: General Equilibrium and Economic Welfare

Andrew and Sarah are two traders in a pure exchange economy with two goods,Bikes and TVs.Suppose Andrew has preferences given by: U(B,T)= BT where B is the number of bikes and T is the number of TVs.Sarah only derives utility from TV,so her utility function can be given by: V(B,T)= T Describe the contract curve.

If only two people are trading their endowments and no production is possible,then the equilibrium they reach will

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 ∗ C.The price of clothing is always $1.What is the competitive equilibrium price for food?

Suppose there are only two goods - Food (F)and Shelter (S).The demand equations for these two goods depend on their prices,pF and pS as follows: DF (pF,pS)= 10 - 2pF - pS DS (pF,pS)= 10 - pF - 2pS The supply curves depend only on their own prices: SF (pF)= pF SS (pS)= 5pS Determine the equilibrium price and quantity of these goods.

If pizza is measured on the horizontal axis and pretzels are measured on the vertical axis,the slope of the production possibility frontier at a given combination reflects

Competition results in the efficient product mix because

For the following, please answer "True" or "False" and explain why. -The competitive equilibrium determines the absolute prices of each of the goods based on the endowments and marginal rates of substitution.

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a and trade is possible,which of the following points are possible equilibria?