Deck 3: Tools of Normative Analysis

Question 1

Movement from an inefficient allocation to an efficient allocation in the Edgeworth Box will

A)increase the utility of all individuals.
B)increase the utility of at least one individual,but may decrease the level of utility of another person.
C)increase the utility of one individual,but cannot decrease the utility of any individual.
D)decrease the utility of all individuals.

Answer 1

increase the utility of at least one individual,but may decrease the level of utility of another person.

Question 2

Partial equilibrium is

A)exactly like general equilibrium.
B)studying only the supply side of the market.
C)studying individual markets.
D)examining the demand side of the market.

Answer 2

studying individual markets.

Question 3

The marginal rate of substitution is

A)the slope of the utility curve.
B)the slope of the contract curve.
C)the slope of the utility possibilities curve.
D)none of the above.

Answer 3

the slope of the utility curve.

Question 4

The Edgeworth Box should

A)lie inside the PPF.
B)lie partially inside the PPF.
C)lie completely outside of the PPF.
D)never touch the PPF.

Question 5

Pareto points in the Edgeworth Box are

A)found when utility curves are tangent.
B)found when MRS are equal.
C)found when one person cannot be made better off without making another person worse off.
D)all of the above.
E)none of the above.

Question 6

The Second Fundamental Theorem of Welfare Economics requires

A)that indifference curves be convex to the origin.
B)that isoquants be concave to the origin.
C)that there are no set prices for Pareto efficient allocations.
D)that production be twice as large as consumption.
E)all of the above.

Question 7

General equilibrium refers to

A)examining markets without specific information.
B)finding equilibrium from general information.
C)pricing goods at their shadow price.
D)all of the above.
E)none of the above.

Question 8

The contract curve is the collection of points where utility curves are tangent in the Edgeworth box.

Question 9

Welfare economics is concerned with individual desirability of alternative economic states.

Question 10

A public good is

A)a good that the public must pay for.
B)nonexcludable in consumption.
C)more costly than a private good.
D)paid for by the government.

Question 11

The First Fundamental Theorem of Welfare Economics requires

A)producers and consumers to be price takers.
B)that there be a market for every commodity.
C)that the economy operate at some point on the utility possibility curve.
D)all of the above.

Question 12

Points on the utility possibility frontier are

A)inefficient.
B)points of incomplete preferences.
C)not producible.
D)Pareto.

Question 13

A social welfare function

A)is a function made by the Department of Welfare.
B)is a function that shows that the utilities of society are incorporated into society's well?being.
C)can never be derived numerically.
D)is all of the above.

Question 14

Social indifference curves are the same as a Social Welfare Function.

Question 15

Market failure can occur when

A)monopoly power exists in the market.
B)markets are missing.
C)consumers can influence prices.
D)all of the above.

Question 16

The Utility Possibility Frontier is derived from utility curves.

Question 17

Merit goods

A)are provided for those who behave themselves and play nice.
B)should be provided even if there is no demand for them.
C)increase in costs along with demand.
D)do none of the above.

Question 18

The absolute value of the slope of the production possibilities curve is the

A)marginal rate of substitution.
B)contract curve.
C)offer curve.
D)Engel curve.
E)marginal rate of transformation.

Question 19

When the First Fundamental Theorem of Welfare Economics doesn't hold,there is a market failure.

Question 20

Points outside the production possibility frontier are

A)producible.
B)endowment points.
C)consumer equilibrium points.
D)unattainable.

Question 21

Suppose that a competitive firm's marginal cost of producing output q is given by MC=5+2q.Assume that the market price of the firm's product is $27.

A)What level of output will the firm produce?
B)What is the firm's producer surplus?

Question 22

A utility possibilities frontier need not incorporate the utility of every individual.

Question 23

Why might asymmetric information contribute to the problem of a market failure?

Question 24

Consider a simple exchange economy where the marginal rate of transformation between two goods is greater than the marginal rate of substitution for the same goods.Can Pareto equilibrium be derived?

Question 25

Pareto improvement can be a reallocation of resources that makes more than one person better off.

Question 26

Merit goods have received considerable attention toward the end of this chapter.Can concerts and other publicly provided services be rationalized using these ideas?

Question 27

If James has a utility curve characterized by the function of U = 2X³ Y²,what is his marginal rate of substitution between goods X and Y?

Question 28

Consider an Edgeworth economy where there are two citizens,Mr.Cortopassi and Ms.Thomas.There are only two goods to be consumed in the economy,Beer and Pretzels.The total amount of Beer is 12 units.The total amount of Pretzels is 12 units.Answer the following: Suppose Mr.Cortopassi has utility for the two goods characterized as U_C(B,P)=B+P.Ms.Thomas's utility function is U_T(B,P)=B+P.Identify the points that are Pareto efficient.

Question 29

Marginal cost of a product is the incremental cost of one additional unit of input.

Question 30

In equilibrium,the MRT should not equal the MRS of all individuals.

Question 31

Social welfare functions can be formed in many ways.They can be additive,meaning that the all utilities curves are added together.They incorporate the idea of least-best,meaning that the utility of the person with the least is maximized.If you were a central planner for an economy,what type of social welfare function would you create?

Question 32

Imagine a simple economy with only two people,Leroy and Percy.If the Social Welfare Function is W = U_L + U_P,and the Utility Possibilities Frontier is UPF = U_L + 2U_P,what will be the societal optimum?