Deck 15: The Invisible Hand and the First Welfare Theorem

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

Both successful market-processes ​and central planning rely on self-interested behavior.

Question 9

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

Question 10

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 11

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 12

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 13

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 14

"Any social planner who implements efficient outcomes will produce the same output in a given market as the competitive market would." In addition to the conditions of the first welfare theorem, which of the following have to hold in order for the statement in quotes to be true?

A)Consumer tastes are quasilinear.
B)Consumer tastes are homothetic.
C)Production frontiers are homothetic.
D)Both (a) and (c).
E)Both (b) and (c).
F)None of the above.

Question 15

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

Question 16

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 17

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 18

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 19

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

Question 20

The First Welfare Theorem states that, invariably, a competitive market results in an efficient allocation of resources and thus maximizes social surplus.

Question 21

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 22

Which of the following is not a condition required for the first welfare theorem to hold:

A)No government policy interferes with the formation of prices.
B)No market actor has market power.
C)Tastes are quasilinear.
D)Income is distributed fairly before markets open.
E)(a) and C
F)(b) and (c)
G)(c) and (d)
H)(b) and (d)

Question 23

Which of the following is true about competitive equilibria in environments where the conditions of the first welfare theorem are satisfied?

A)We have to be able to represent the demand side of the economy by a representative consumer.
B)Consumer surplus is smaller than what would be estimated if it were measured on the market demand curve when goods are normal.
C)Producer surplus is zero in the long run when all firms share the same technology.
D)(a) and (b) are true.
E)(b) and (c) are true.
F)(a) and (c) are true.
G)All of the above.
H)None of the above.

Question 24

Explain how prices in a competitive market form --- and how they take the place of almost limitless information that a social planner would need if he tried to mimic the market outcome.