Question 1

If two people have identical Cobb-Douglas utility functions, then in every Pareto optimal allocation, they must consume all goods in the same proportions as each other.

Accepted Answer

A) True 
 B)False

Question 2

Tamara and Julio consume only bread and wine.They trade only with each other and there is no production.They both have strictly convex preferences.Tamara's initial endowment of bread and wine is the same as Julio's.

Accepted Answer

A) At the initial endowment their marginal rates of substitution must be the same. 
B) In a competitive equilibrium, the ratio of the two prices must be 1. 
C) In a competitive equilibrium, they must consume identical consumption bundles. 
D) If they have identical utility functions, then the initial allocation is Pareto optimal. 
E) None of the above. 
A) At the initial endowment their marginal rates of substitution must be the same. 
B) In a competitive equilibrium, the ratio of the two prices must be 1. 
C) In a competitive equilibrium, they must consume identical consumption bundles. 
D) If they have identical utility functions, then the initial allocation is Pareto optimal. 
E) None of the above.

Question 3

If demand varies continuously with price, then even if there are thousands of goods, there will be at least one set of prices such that demand equals supply in every market.

Accepted Answer

A) True 
 B)False

Question 4

A small economy has only two consumers, Boris and Vanessa.Boris's utility function is U(x, y)= x + 16y1/2.Vanessa's utility function is U(x, y)= x + 2y.Boris is endowed with 160 units of x and 60 units of y.They make trades to reach a Pareto optimal allocation of resources in which both persons consume positive amounts.How much y does Boris consume?

Accepted Answer

A) 32 units 
B) 19 units 
C) 14 units 
D) 16 units 
E) There is not enough information to determine how much y he will consume. 
A) 32 units 
B) 19 units 
C) 14 units 
D) 16 units 
E) There is not enough information to determine how much y he will consume.

Question 5

Jack Spratt's utility function is U(F, L)= L.His wife's utility function is U(F, L)= F.If Jack's initial endowment is 10 units of F and 5 units of L and if Jack's wife's initial endowment is 6 units of F and 10 units of L, then in an Edgeworth box for Jack and his wife, an allocation of F and L will be Pareto optimal only if it is at a corner of the box.

Accepted Answer

A) True 
 B)False

Question 6

Amaranda and Bartolo consume only two goods, X and Y.They can trade only with each other and there is no production.The total endowment of good X equals the total endowment of good Y.Amaranda's utility function is U(xA, yA)= min{xA, yA} and Bartolo's utility function is U(xB, yB)=max{xB, yB}.In an Edgeworth box for Amaranda and Bartolo, the set of Pareto optimal allocations is

Accepted Answer

A) the main diagonal. 
B) both diagonals. 
C) the whole Edgeworth box. 
D) the edges of the box and the main diagonal. 
E) the edges of the box. 
A) the main diagonal. 
B) both diagonals. 
C) the whole Edgeworth box. 
D) the edges of the box and the main diagonal. 
E) the edges of the box.

Question 7

Abduls utility is U(X A, Y A)= min{X A, Y A}, where X A, and Y A are his consumptions of goods X and Y respectively.Babettes utility function is U(X B, Y B)= X B Y B, where X B and Y B are her consumptions of goods X and Y.Abduls initial endowment is no units of Y and 6 units of X.Babettes initial endowment is no units of X and 10 units of Y.If X is the numeraire good and p is the price of good Y, then supply will equal demand in the market for Y if

Accepted Answer

A) 6/(p + 1)+ 5 = 10. 
B) 10/6= p. 
C) 10/(p + 1)+ 3 = 10. 
D) min{6, 10} + 6/2p = 10. 
E) min{6, 10} + 10/2p = 10. 
A) 6/(p + 1)+ 5 = 10. 
B) 10/6= p. 
C) 10/(p + 1)+ 3 = 10. 
D) min{6, 10} + 6/2p = 10. 
E) min{6, 10} + 10/2p = 10.

Question 8

Kens utility function is U(Q K, W K)= Q K W K and Barbies utility function is U(Q B, W B)= Q B W B.If Kens initial endowment were 5 units of quiche and 7 units of wine and Barbies endowment were 10 units of quiche and 7 units of wine and Barbie's endowment were 10 units of quiche and 7 units of wine, then at any Pareto optimal allocation where both persons consumed some of each good,

Accepted Answer

A) Ken would consume 15 units of quiche for every 14 units of wine that he consumed. 
B) Barbie would consume 10 units of quiche for every 7 units of wine that she consumed. 
C) Ken would consume 5 units of quiche for every 7 units of wine that he consumed. 
D) Barbie would consume twice as much quiche as Ken. 
E) None of the above. 
A) Ken would consume 15 units of quiche for every 14 units of wine that he consumed. 
B) Barbie would consume 10 units of quiche for every 7 units of wine that she consumed. 
C) Ken would consume 5 units of quiche for every 7 units of wine that he consumed. 
D) Barbie would consume twice as much quiche as Ken. 
E) None of the above.

Question 9

Morris has the utility function U(b, w)= 3b + 3w and Philip has the utility function U(b, w)= bw, where b is the number of books consumed per month and w is bottles of wine consumed per month.If we draw an Edgeworth box with books on the horizontal axis and wine on the vertical axis and if we measure Morris's consumptions from the lower left corner of the box, then the contract curve contains

Accepted Answer

A) a straight line running from the upper right corner of the box to the lower left. 
B) a curve that gets steeper as you move from left to right. 
C) a straight line with slope 1/1 passing through the lower left corner of the box. 
D) a straight line with slope 1/1 passing through the upper right corner of the box. 
E) a curve that gets flatter as you move from left to right. 
A) a straight line running from the upper right corner of the box to the lower left. 
B) a curve that gets steeper as you move from left to right. 
C) a straight line with slope 1/1 passing through the lower left corner of the box. 
D) a straight line with slope 1/1 passing through the upper right corner of the box. 
E) a curve that gets flatter as you move from left to right.

Question 10

In a two-person, two-good, exchange economy, both consumers have quasilinear utility functions, linear in good 2.If quantities of good 1 are measured horizontally and quantities of good 2 are measured vertically in the Edgeworth box, the set of Pareto optimal allocations includes

Accepted Answer

A) a horizontal line through the interior of the box. 
B) a vertical line. 
C) a straight line from the lower left to the upper right corner of the box. 
D) a curved line from the lower left to the upper right corner of the box. 
E) all four edges of the box. 
A) a horizontal line through the interior of the box. 
B) a vertical line. 
C) a straight line from the lower left to the upper right corner of the box. 
D) a curved line from the lower left to the upper right corner of the box. 
E) all four edges of the box.

Question 11

Sheila and Ivan live in an isolated valley and trade with no one but each other.They consume only apples and oranges.Sheila has an initial endowment of 6 apples and 19 oranges.Ivan has an initial endowment of 18 apples and 20 oranges.For Sheila, the two goods are perfect substitutes, one for one.For Ivan, they are perfect complements, one for one.At all Pareto efficient allocations,

Accepted Answer

A) Sheila must consume at least 25 oranges. 
B) the slopes of the two traders' indifference curves are the same. 
C) Ivan must consume 17.50 apples. 
D) Sheila must consume at least 15 oranges. 
E) Ivan must consume all of the apples. 
A) Sheila must consume at least 25 oranges. 
B) the slopes of the two traders' indifference curves are the same. 
C) Ivan must consume 17.50 apples. 
D) Sheila must consume at least 15 oranges. 
E) Ivan must consume all of the apples.

Question 12

In general equilibrium analysis, an allocation is a feasible allocation if every consumer is consuming a bundle that costs no more than his or her income.

Accepted Answer

A) True 
 B)False

Question 13

Adelino and Benito consume only two goods, X and Y.They trade only with each other and there is no production.Adelino's utility function is given by U(xA, yA)= 2xA + 5yA and Benito's utility function is given by U(xB, yB)= 2(6xB + 15yB)1/2.In the Edgeworth box constructed for Adelino and Benito, the set of Pareto optimal allocations is

Accepted Answer

A) the main diagonal. 
B) both diagonals. 
C) the entire contents of the Edgeworth box. 
D) the right and left edges of the box. 
E) the upper and lower edges of the box. 
A) the main diagonal. 
B) both diagonals. 
C) the entire contents of the Edgeworth box. 
D) the right and left edges of the box. 
E) the upper and lower edges of the box.

Question 14

Arturo and Belen consume only two goods, X and Y.They have strictly convex preferences and no kinks in their indifference curves.At the initial allocation, the ratio of Arturo's marginal utility of X to his marginal utility of Y is A and the ratio of Belen's marginal utility of X to his marginal utility of Y is B, where A x/py = C.

Accepted Answer

A) C > B B) C < A. C) C = A. D) C = B. E) A < C < B. A) C > B B) C < A. C) C = A. D) C = B. E) A < C < B.

Question 15

Dan and Marilyn consume two goods, x and y.They have identical Cobb-Douglas utility functions.Initially Dan owns 10 units of x and 10 units of y.Initially Marilyn owns 40 units of x and 20 units of y.They make exchanges to reach a Pareto optimal allocation which is better for both than the no-trade allocation.Which of the following is not necessarily true about the allocation they trade to?

Accepted Answer

A) Marilyn consumes 5 units of x for every 3 units of y that she consumes. 
B) The locus of Pareto optimal allocations is a diagonal straight line in the Edgeworth box. 
C) Dan's consumption of x is greater than his consumption of y. 
D) Dan consumes more than 10 units of x. 
E) Marilyn consumes at least 40 units of x. 
A) Marilyn consumes 5 units of x for every 3 units of y that she consumes. 
B) The locus of Pareto optimal allocations is a diagonal straight line in the Edgeworth box. 
C) Dan's consumption of x is greater than his consumption of y. 
D) Dan consumes more than 10 units of x. 
E) Marilyn consumes at least 40 units of x.

Question 16

If the assumptions of the first theorem of welfare economics apply and if the economy is in a competitive equilibrium, then any reallocation that benefits someone must harm someone else.

Accepted Answer

A) True 
 B)False

Question 17

Astrids utility function is U(H A, C A)= H A C A.Birgers utility function is min{H B, C B}.If Astrids initial endowment is no cheese and 11 units of herring and if Birgers initial endowments are 4 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, it must be that demand equals supply in the herring market.This implies that

Accepted Answer

A) 4/(p + 1)+ 6 = 12. 
B) 4/12 = p. 
C) 412/4 = p. 
D) 4/p + 12/2p = 12. 
E) min{12, 4} = p. 
A) 4/(p + 1)+ 6 = 12. 
B) 4/12 = p. 
C) 412/4 = p. 
D) 4/p + 12/2p = 12. 
E) min{12, 4} = p.

Question 18

From Walras's law it follows that in a market with two goods, if demand equals supply in one market, then demand must equal supply in the other market.

Accepted Answer

A) True 
 B)False

Question 19

Kens utility function is U(Q K, W K)= Q K W K and Barbies utility function is U(Q B, W B)= Q B W B.If Kens initial endowment were 3 units of quiche and 11 units of wine and Barbies endowment were 6 units of quiche and 11 units of wine, then at any Pareto optimal allocation where both persons consumed some of each good,

Accepted Answer

A) Ken would consume 3 units of quiche for every 11 units of wine that he consumed. 
B) Barbie would consume twice as much quiche as Ken. 
C) Ken would consume 9 units of quiche for every 22 units of wine that he consumed. 
D) Barbie would consume 6 units of quiche for every 11 units of wine that she consumed. 
E) None of the above. 
A) Ken would consume 3 units of quiche for every 11 units of wine that he consumed. 
B) Barbie would consume twice as much quiche as Ken. 
C) Ken would consume 9 units of quiche for every 22 units of wine that he consumed. 
D) Barbie would consume 6 units of quiche for every 11 units of wine that she consumed. 
E) None of the above.

Question 20

A competitive equilibrium allocation must be a feasible allocation.

Accepted Answer

A) True 
 B)False

Exam 30: Exchange-Part A

If two people have identical Cobb-Douglas utility functions, then in every Pareto optimal allocation, they must consume all goods in the same proportions as each other.

Tamara and Julio consume only bread and wine.They trade only with each other and there is no production.They both have strictly convex preferences.Tamara's initial endowment of bread and wine is the same as Julio's.

If demand varies continuously with price, then even if there are thousands of goods, there will be at least one set of prices such that demand equals supply in every market.

In a two-person, two-good, exchange economy, both consumers have quasilinear utility functions, linear in good 2.If quantities of good 1 are measured horizontally and quantities of good 2 are measured vertically in the Edgeworth box, the set of Pareto optimal allocations includes

In general equilibrium analysis, an allocation is a feasible allocation if every consumer is consuming a bundle that costs no more than his or her income.

If the assumptions of the first theorem of welfare economics apply and if the economy is in a competitive equilibrium, then any reallocation that benefits someone must harm someone else.

From Walras's law it follows that in a market with two goods, if demand equals supply in one market, then demand must equal supply in the other market.

A competitive equilibrium allocation must be a feasible allocation.

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters