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 free trade between these two countries,Canada will produce food

Can consumption efficiency be achieved even if the efficient product mix is not achieved?

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.The price of clothing is always $1.If the price of food is $3,does a competitive equilibrium exist? If not,what will happen to the price of food?

The Edgeworth box version of interpersonal trade requires the individuals to be in close proximity of one another.

Suppose the marginal cost of a piece of candy is given by MC_c = 2Q_c and the marginal cost of a desk is MC_d = 4 + 4Q_d.The current production levels are 20 pieces of candy and 4 desks.The marginal rate of transformation (MRT)is

If MRS's are equal across all consumers,then the efficient product mix has been achieved.

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

A social welfare function (SWF)

A cake is to be shared by two people.Both desire the largest piece possible.One of the two will cut the cake.Under which of the following situations will the cutter adopt a Rawlsian social welfare function?

Joe and Rita each have some milk and cookies (Milk on the horizontal axis).Joe's MRS of cookies for milk is 2.Rita's MRS of cookies for milk is 4.Which of the following statements is TRUE?

-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

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.

Gains from trade will be possible as long as

-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 will have a slope of -1

If firms are producing efficiently,but consumers can reallocate goods amongst themselves,

If government chooses a policy that does not lead to a Pareto improvement,one may say that

When comparing partial equilibrium effects to general equilibrium effects one can conclude that

The First Theorem of Welfare Economics can be expressed as

The saying "What's that got to do with the price of tea?" reflects

Any point on the contract curve is Pareto efficient regardless of the initial endowment.