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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 16 General Equilibrium and Economic Efficiency16.1 General Equilibrium Analysis1) Refer to Figure 16.1.1 above. The interdependence of these markets starts with a shift in the supply curve in the market for movie tickets, which is caused by：A) an increas
2、e in the demand for DVDs.B) a tax on movie tickets.C) a decrease in the demand for DVDs.D) an increase in the number of movie theaters.Answer: BDiff: 1Section: 16.1Refer to Figure 16.1.1 above. After the shift in supply in panel (a), the higher price of movie tickets causes:A) demand to decrease in
3、panel (a), which feeds back into (b), causing demand to increase in panel (b). B) demand to increase in panel (b) and a higher price, which feeds back as higher demand in panel (a).C) demand to increase in panel (b), but not as much as an increase in demand in panel (a).D) demand to decrease in both
4、 panels, which causes even further decreases in demand.Answer: BDiff： 1Section: 16.1心rs2(wdRefer to Figure 16.2.2 above. Which allocation is efficient?A) A and BBand CB) Cand DD onlyAnswer: CDiff： 1Section: 16.2Which of the following is true at the exchange equilibrium between two individuals?A) The
5、ir marginal rates of substitution are equal.B) The slopes of the individuals indifference curves are equal.C) Both individuals marginal rates of substitution are equal to the ratio of the prices of the goods.D) A and B onlyA, B, and C are all true.Answer: EDiff： 2Section: 16.2To be certain that exch
6、ange between people is mutually beneficial, we generally assumeA) not all people are free to enter the market at will, but once in they are free to make any offer to trade.B) all people have complete information about each others preferences.C) there are no transaction costs.D) both B and Cboth A an
7、d BAnswer: DDiff: 2Section: 16.2Refer to Figure 16.2.3 above. The initial allocation of resources is at point K. A new allocation that leaves James and Karen both better off is at point:A B c DA)B)OD)Answer: CDiff: 2Section: 16.2Scenario 162Sam and Sally are the only consumers in an economy where te
8、e shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Samtee shirtsMU(tee shirts)CandyMU(Candy)110162925383447455654Sallytee shirtsMU (tee shirts)CandyMU(Candy)12411221929318384144751053There are 7 candies and 7 tee shirts total in the ec
9、onomy.Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.9) Refer to Scenario 16.2. What is Sams marginal rate of substitution of tee shirts for candy at the current distribution?A) 3B)2C) 1/4D) It is impossible to de
10、termine without the prices of each commodity.Answer: BDiff: 1Section: 16.2Refer to Scenario 16.2. What is Sallys marginal rate of substitution of tec shirts for candy at the current distribution?A) 7/2B)2C) 1/2D) It is impossible to determine without the prices of each commodity.Answer: BDiff： 1Sect
11、ion: 16.210) Refer to Scenario 16.2. Is the current distribution Pareto optimal?A) Yes.B) No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off.C) No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off. D) Without
12、 the prices of each commodity it is impossible to determine if this distribution is Pareto optimal.Answer: ADiff: 2Section: 16.2Scenario 16.3:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for ea
13、ch appears below.Samtee shirtsMU (tee shirts)CandyMU(Candy)110162925383447455654Sallytee shirtsMU(tee shirts)CandyMU(Candy)12411221929318384144751053There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 4 tee shirts and 4 candi
14、es. Sally has 3 tee shirts and 3 candies.11) Refer to Scenario 16.3. What is Sams marginal rate of substitution of tee shirts for candy at the current distribution?A) 2B)7/5C) 5/7It is impossible to determine without the prices of each commodity.Answer: BDiff： 1Section: 16.212) Refer to Scenario 16.
15、3. What is Sallys marginal rate of substitution of tee shirts for candy at the current distribution?A) 9/4B)2C) 4/9D) It is impossible to determine without the prices of each commodity.Answer: ADiff: 1Section: 16.2Refer to Scenario 16.3. Is the current distribution Pareto optimal?A) Yes.B) No, as Sa
16、m has more of both goods.C) No, as it is possible to find a way for Sam to sell tee shirts to Sally (and receive candy in return) that would make both of them better off.D) No, as it is possible to find a way for Sam to sell candy to Sally (and receive tee shirts in return) that would make both of t
17、hem better o仔.E) Without knowing the prices of tee shirts and candy we cannot determine if this distribution is Pareto optimal.Answer: CDiff： 2Section: 16.2Refer to Scenario 16.3. What is the relative price of tee shirts to candy?A) $2.25$2B) $1.40The relative price will be between $2.25 and $1.40.C
18、) It is impossible to determine.Answer: EDiff: 1Section: 16.2If the initial distribution of two goods between two people is Pareto optimal, which of the following statements is TRUE?A) It is possible to reallocate the goods between the two people so as to increase the utility of both people.B) It is
19、 possible to reallocate the goods between the two people so as to increase the utility of one person without decreasing the utility of the other.C) It is possible to reallocate the goods between the two people so as to increase the utility of one person, but only at the expense of the other person.D
20、) It is impossible to reallocate the goods between the two people so as to increase either persons utility.E) none of the aboveAnswer: CDiff： 2Section: 16.220) Suppose there is a water shortage, and the governor proposes that the government distribute equal quantities of water to each person at no c
21、ost to the consumers. If consumers were forbidden to trade water, would such a distribution be Pareto optimal?A) Yes, because each person has the same amount of water as everyone else.B) Yes, because everyone would be receive their water for free.C) Not necessarily, as people may differ in their mar
22、ginal rates of substitution between water and other goods.D) It is impossible to determine without knowing the price of water.E) none of the aboveAnswer: CDiff： 3Section: 16.221) If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE?A) It is po
23、ssible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good.B) It is possible to reallocate labor and capital across industries so as to increase the production of one good, but only by reducing the productio
24、n of another good.C) It is possible to reallocate labor and capital across industries so as to increase the production of every good.D) none of the aboveAnswer: BDiff: 2Section: 16.222) Why does perfect competition guarantee a Pareto optimal distribution of goods between two people? Under perfect co
25、mpetition,everyone has the same preferences.A) everyone faces the same prices.B) everyone consumes the same quantity of both goods.C) goods are homogeneous.Answer: BDiff： 2Section: 16.2All possible efficient allocations of 2 goods between 2 people are located on:A) the indifference curve.B) the cont
26、ract curve.C) the production possibilities frontier.D) the budget line.Answer: BDiff： 1Section: 16.2A move from one point on a contract curve to another point on the contract curve will make:A) both individuals better off.B) both individuals worse off.C) one individual better off and the other indiv
27、idual worse off.D) the goods more expensive.Answer: CDiff： 1Section: 16.2Once a point on a contract curve has been chosen,A) it is possible to make both individuals better off.B) it is possible to make one individual better off only at the expense of the other.C) there is no change that would make b
28、oth individuals worse off.D) it is impossible for both individuals to have more of both goods.Answer: BDiff： 1Section: 16.2In an Edgeworth box, all points of efficiency occur:A) at the intersections of the indifference curves.B) at the points of tangency between the sets of indifference curves.C) in
29、 the midpoint of the diagram.D) at any point other than the intersections of the indifference curves.Answer: BDiff： 1Section: 16.2The statement: If everyone trades in the competitive marketplace, all mutually beneficial trades will be completed, and the resulting equilibrium allocation of resources
30、will be economically efficient. is formally known as:A) the law of supply and demand.B) the first theorem of supply and demand.C) the first theorem of welfare economics.D) the first theorem of efficiency in economics.Answer: CDiff: 1Section: 16.2Suppose there are 10 apples and 10 oranges in the econ
31、omy. Joe is currently consuming 4 apples and 5 orangeSz and Jane is consuming 6 apples and 5 oranges. At this allocation, Joes marginal utility of apples is 3, and his marginal utility of oranges is 5. Janes marginal utility of apples is 9. The current allocation is necessarily efficient if:A) the p
32、rice of apples is 60% of the orange price.B) Janes marginal utility of oranges is 6 at this point.C) Joes MRS equal the MRT.D) Janes marginal utility of oranges is 15 at this point.Answer: ADiff： 2Section: 16.2For an individual consumer, a corner solution may be optimal such that MRS and MRT are not
33、 equal, A) but this is not possible in an Edgeworth Box due to the transitivity of preferences.B) but this is not possible in an Edgeworth Box because price ratios must be positive.C) and this may also occur in an Edge worth Box.D) and this may only occur in an Edgeworth Box under the perfect comple
34、ments case.Answer: CDiff: 2Section: 16.2Use the following statements to answer this question:I) The first theorem of welfare economics refers to efficient allocation of goods across groups of consumers, and it does not consider the problem of efficient production of these goods.J) . The only way to
35、achieve an efficient allocation of goods is to use competitive markets.K) I and II are true.L) I is true and II is false.M) II is true and I is false.N) I and II are false.Answer: BDiff： 1Section: 16.2Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and
36、5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joes marginal utility of apples is 3, and his marginal utility of oranges is 5. Janes marginal utility of apples is 6, and her marginal utility of oranges is 10. If the current price of apples is S4 and the current price of
37、 oranges is $5, then there is an:A) excess demand for apples and an excess supply of oranges.B) excess demand for oranges and an excess supply of apples.C) equilibrium in the market with no excess supply or demand for either good.D) excess supply of apples and oranges.Answer: BDiff: 2Section: 16.2Su
38、ppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 orangeSz and Jane is consuming 6 apples and 5 oranges. At this allocation, Joes marginal utility of apples is 3, and his marginal utility of oranges is 5. Janes marginal utility of apples is 6, and her
39、 marginal utility of oranges is 10. The current price of apples is S4 and the current price of oranges is $5. To reach a competitive equilibrium, the required price adjustment is:A) a decrease in the apple price relative to the orange price.B) a decrease in the orange price relative to the apple pri
40、ce.C) no change in the relative prices.D) an increase in both prices.Answer: ADiff: 2Section: 16.2Two individuals, A and B, are free to engage in trade of clothing and food. Initially, A has 12 units of clothing and 9 units of food, and B has 8 units of clothing and 11 units of food. The individuals
41、 have the following utility functions in clothing C and food F:Ua = 015QcQfUb = 0.08QC - Qfwhere Qf represents units of food, Qc represents units of clothing, and U represents utility. Determine if a mutually beneficial trade is possible between A and B. If so, who would trade for what?Answer: If, a
42、nd only if, an efficient allocation exists, the MRSA of clothing for food for A will equal the MRSB of clothing for B.HU“a灰王o15QfOF9n7RCFdQC 2LL015QcQc12D MRS *0.08Qf0.08QC111.375In this situation the MRS for A does not equal MRS for B; consequently there is a potential for mutually beneficial trade
43、. Individual A is willing to give up at most 0.75 units of food to get one additional unit of clothing. Individual B is willing to give up at most 1.375 units of food to get one unit of clothing (or give up 0.727 units of clothing to get one unit of food). Therefore a mutually beneficial exchange ca
44、n be made. A would trade clothing for food and B would trade food for clothing. The terms of trade would be between 0.75 and 1.375 depending upon the exact bargaining process.Diff： 2Section: 16.223) Sarah and Jane are two representative individuals living in an economy that produces two goods, X and
45、 Y. Sarahs and Janes utility functions are given as:Sarah: US = 100X0-5y0.5Jane: UJ = 50X0-4y0.6The market determined prices of X and Y are $10 and $20, respectively. Current outputs are 58 units of X per time period and 36 units of Y. Janes current income is $600 per time period, while Sarahs incom
46、e is $700 per time period.a. Write expressions for Sarah and Janes marginal rates of substitution.b. Determine the quantities of X and Y that Sarah and Jane should consume in equilibrium.c. Do the values calculated in part (b) satisfy the conditions for equilibrium in exchange? Explain using numbers
47、.d. Examine your answers in parts (b) and (c). if equilibrium has not been achieved, what would be necessary to reach equilibrium? If equilibrium has been achieved, comment on the process by which equilibrium was reached.Answer:a.Janes MRS:MRS)= SOX-Y。 = _Y- MUy - 50X0.50y-0.50 - 7Sarahs MRS:MRSS = ZOX-OY。60 = 2y_一 MUy - 30X0.40y-0.40 - TxPXb.For equilibrium, each individual must equate MRS toPx _ 10 _ 1P7= 20 = 2For Jane:=-f Y= lxY 22For Sarah:2 Y _ 1 Y _ 31mm3X 2 X 22Y= -X3) Which of these is NOT an exercise in