Exam 10: General Equilibrium and Economic Welfare

There are two closely related crops,X and Y,with the following demand functions Q_X = 180 - 2P_X + P_Y and Q_Y = 150 + P_X - P_Y where Q_X is the quantity of X,P_X is the price of X,Q_Y is the quantity of Y,and P_Y is the price of Y.These two crops are grown in two widely separated countries so there is no interrelationship between the supply curves.The short-run perfectly inelastic supply for X is 150 while the short-run perfectly inelastic supply for Y is 100.In equilibrium,the prices are

Suppose the U.S.can produce 10 units of food and 5 units of clothing (or any such linear combination)and Canada can produce 6 units of food and 4 units of clothing (or any such linear combination).If trade occurs between these two countries,which should produce more food and which more clothing?

A competitive equilibrium is Pareto efficient because at the competitive equilibrium,

If everyone's utility is given equal weight and a change in resource allocation results in one person's gain exceeding another person's loss,we can say that the new allocation

If society were to maximize the utility of its best-off member,the final allocation would be

If society were to maximize the utility of its worst-off member,the final allocation would most likely be

Assume a government likes a particular equilibrium along the contract curve.It can achieve that equilibrium through competition and income redistribution.

Suppose an economy with two goods (candy and desk)and two identical agents that is in a competitive equilibrium.The marginal cost of a piece of candy is given by MC_c = 4Q_c and the marginal cost of a desk is MC_d = 2 + Q_d.The current production level of candy (Q_c)is 4 pieces and of desks (Q_d)is 30.What can be said about the marginal utility of candy (MU_c)and the Marginal utility of desks (MU_d)?

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.Point a is NOT Pareto efficient because

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

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Al has no ability to bargain,the final allocation will be at point

At a given point in time,the Rawlsian welfare function gives equal weight to each individual's utility.

Comparing the distribution of wealth of the wealthiest 1% of the population in the United States before and after the recent Great Recession to what occurred before and after the Great Depression,

The Arrow impossibility theorem suggests

The general equilibrium analysis of a minimum wage applied to only some sectors of the economy suggests that

At the competitive equilibrium quantity supplied equals quantity demanded in all markets.

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.

If a society only cares about efficiency and not equity,then

-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

Suppose that the minimum wage covers all sectors of the economy; however,for unionized laborers,the minimum wage is ineffective.That is,the union wage is already above the minimum wage.Analyze the impact of an increase in the minimum wage on both the unionized and non-unionized labor markets.(Assume that the higher minimum wage is still ineffective in the unionized sector and that union and nonunion labor are substitutable.)