Deck 15: The Invisible Hand and the First Welfare Theorem

Question 1

Worker surplus can be measured as an area on the market labor supply curve if worker tastes are quasilinear in leisure.

Answer 1

True
In this case,the compensated labor supply curve is the same as the uncompensated labor supply curve.

Question 2

Absent any violations of the first welfare theorem,the competitive equilibrium is efficient.

Answer 2

True
That is in fact the first welfare theorem -- absent any of the distortions from violations of the underlying conditions,markets are efficient.

Question 3

Aggregate producer surplus in an industry can be measured along the market supply curve in the short run but not in the long run.

Answer 3

False
It can be measured along the long run market supply curve in the long run.

Question 4

If the individuals in a group of consumers all have homothetic tastes,then we can treat the group as a single representative consumer.

Question 5

In a 2-good model,suppose that all individuals have tastes that are quasilinear in either good 1 or in good 2 (with some of each represented in the group.)The quasilinearity of everyone's tastes is then sufficient to insure that we can treat the group as if it were a single representative consumer.

Question 6

If the individuals in a group of consumers have identical tastes,then the group can be treated as if it behaved as a singe representative consumer.

Question 7

Suppose all individuals in a group have homothetic tastes.Then we can be sure that the group can be treated as a single representative consumer is if the group members also have identical tastes.

Question 8

If a group of individual consumers can be treated as a single representative consumer,then the aggregate consumer surplus of the group can be measured along the market demand curve.

Question 9

How would you contrast the interactions within a small family to those in the market place? In what way could you argue that the ways in which interactions are governed in the family can never work in a larger market setting -- just as the ways in which interactions are structured in market settings can never work well in families?

Question 10

Suppose the conditions of the first welfare theorem hold.If the government redistributes income prior to production and trade occurring,the market outcome (resulting from production and trade)will be the same as it would have been had the government not redistributed income (so long as redistribution does not produce deadweight losses).

Question 11

Absent any violations of the conditions underlying the first welfare theorem,the competitive market equilibrium is efficient if and only if tastes are quasilinear.

Question 12

Absent any violations of the first welfare theorem,the competitive market production level of a good will be the same as that chosen by a social planner whose goal includes (but is not necessarily limited to)efficiency.

Question 13

Suppose the conditions of the first welfare theorem hold.If the government redistributes income prior to production and trade occurring,the market outcome (resulting from production and trade)will be efficient so long as no deadweight loss is produced in the levying of redistributive taxation.

Question 14

If consumers within an industry cannot be represented by as single representative consumer,then the industry equilibrium does not occur where market demand intersects market supply.

Question 15

If consumer tastes are quasilinear -- and ignoring the possibility of corner solutions and violations of the conditions of the first welfare theorem,the competitive market production level of the quasilinear good will be the same as that chosen by a social planner whose goal includes (but is not necessarily limited to)efficiency.

Question 16

A "social planner" is a fictional societal planner who would always choose the same outcome as the competitive market.

Question 17

In a 2-good model,if individuals in a group all have tastes that are quasilinear in good 1,then we can treat the group as if it was a single representative consumer.

Question 18

Aggregate producer surplus in an industry is measured along the market supply curve is and only if firm production technologies exhibit the quasilinearity property.