Deck 3: Tools of Normative Analysis

Question 1

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

A) True
B) False
C) Uncertain

Answer 1

True

Question 2

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 these answer options are correct.
E) none of these answer options are correct.

Answer 2

all of these answer options are correct.

Question 3

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.

Answer 3

nonexcludable in consumption.

Question 4

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) all of these answer options are correct.

Question 5

Points outside the production possibility frontier are

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

Question 6

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 7

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 8

Points on the utility possibility frontier are

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

Question 9

The Utility Possibility Frontier is derived from utility curves.

A) True
B) False
C) Uncertain

Question 10

Market failure can occur when

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

Question 11

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) none of these answer options are correct.

Question 12

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

A) True
B) False
C) Uncertain

Question 13

Normative economics

A) does not depend on market interactions.
B) only looks at the best parts of the economy.
C) examines how the economy actually works (as opposed to how it should work).
D) embodies value judgments.

Question 14

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 these answer options are correct.

Question 15

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 these answer options are correct.

Question 16

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

A) True
B) False
C) Uncertain

Question 17

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

A) True
B) False
C) Uncertain

Question 18

Externalities can be difficult to detect in open economies.

A) True
B) False
C) Uncertain

Question 19

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.

Question 20

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 these answer options are correct.

Question 21

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?

Question 22

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 23

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 24

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 25

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 26

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

Question 27

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 28

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

A) True
B) False
C) Uncertain

Question 29

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

A) True
B) False
C) Uncertain

Question 30

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

A) True
B) False
C) Uncertain

Question 31

If the market does not allocate resources perfectly,the government can.

A) True
B) False
C) Uncertain

Question 32

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.What level of output will the firm produce?

Question 33

Normative economics is more important than positive economics.

A) True
B) False
C) Uncertain

Question 34

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

A) True
B) False
C) Uncertain