Deck 21: The Problem of Exchange

Question 1

In order for an efficient allocation in an Edgeworth box to exist, the indifference curves of the agents at the point of that allocation must

A) intersect
B) be tangent to each other
C) not touch at any point or points

Answer 1

be tangent to each other

Question 2

In a primitive, two-person economy, the two agents can

A) consume exactly what they pick
B) change the mix of fruit they have by trading with each other
C) Both answers are correct

Answer 2

Both answers are correct

Question 3

To block is to prevent a trade from occurring by forming a coalition and offering each person in the coalition less than they receive from the current proposed trade.

Answer 3

False

Question 4

An allocation of goods across people such that there are no other feasible allocations that could make all agents better off-or all agents equally well off and at least one strictly better off-than the proposed allocation is called an Edgeworth-optimal (efficient) allocation.

Question 5

If there is an equilibrium allocation, the agents will

A) remain at the no-trade allocation
B) both voluntarily agree to trade to that allocation
C) agree on one of the allocations through a process of bargaining

Question 6

An individually rational trade offers a trader a higher level of utility than he or she could receive by not trading.

Question 7

To prevent a trade from occurring by forming a coalition and offering each person in the coalition more than they receive from the current proposed trade is to

A) optimize
B) collude
C) block

Question 8

An Edgeworth box represents an allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading.

Question 9

A feasible allocation in which agents consume exactly the quantities of the goods that they initially possessed is called a no-trade allocation.

Question 10

A feasible allocation does not allocate more than the total amount of goods available in the economy.

Question 11

An allocation that has the property that, once the parties reach this point, they have no further incentive to continue trading is known as an equilibrium allocation.

Question 12

In the chapter on The Problem of Exchange, transfers of fruit between the two agents are made only through trades ________________ entered into by both parities.

A) involuntarily
B) voluntarily
C) never

Question 13

An allocation is a specification of the ___________ of each good to be ___________ by each agent in the economy.

A) price, consumed
B) quantity, produced
C) quantity, consumed

Question 14

The requirement of trade where two parties must be interested in obtaining each other's goods is the double coincidence of wants.

Question 15

Any point in an Edgeworth box defines a(n)

A) no-trade allocation
B) feasible allocation
C) equilibrium allocation

Question 16

A core curve is a curve in the Edgeworth box that traces out all the efficient trades.

Question 17

Another name for an efficient allocation is a(n0

A) Pareto-optimal allocation
B) Edgeworth-optimal allocation
C) Nash-optimal allocation

Question 18

If there are many equilibrium allocations, the agents will

A) remain at the no-trade allocation
B) both voluntarily agree to trade to that allocation
C) agree on one of these allocations through a process of bargaining

Question 19

Money is a medium that is widely acceptable in exchange for all goods and services and for the settlement of debts.

Question 20

A graphical device that permits us to analyze the process of trade between two parties is called a(n)

A) Edgeworth box
B) Pareto box
C) equilibrium box

Question 21

Why would one agent of one identical pair form a coalition with two agents of another identical pair? Each agent

A) is selfish
B) has convex preferences
C) hates raspberries

Question 22

When the number of agents in the economy approaches infinity, ________________ of allocation remain(s) in the core.

A) infinitely many types
B) only one type
C) exactly two types

Question 23

Describe what happens when the number of agents in an economy approaches infinity.

Question 24

Prices that equate the supply and demand for each good are called

A) competitive prices
B) blocked prices
C) Cournot prices

Question 25

When we add just one more agent of each type to an economy, the equilibrium of the trading process will now guarantee that traders of all types benefit in the sense of achieving final utility levels strictly _______________ the ones they could obtain if they remained at their no-trade allocations.

A) equal to
B) greater than
C) less than

Question 26

In Figure 21.4, point z is halfway on a line between the no-trade allocation at point f and the no-advantage allocation at point m. Yet point z has higher utility than the other two points. This is because of which assumption?

A) selfishness
B) convex preferences
C) increasing returns to scale

Question 27

As we increase the size of an economy by adding more and more agents of each of our two types, the core will

A) shrink
B) increase
C) remain unchanged

Question 28

The set of efficient (Pareto-optimal) allocations that cannot be improved upon by any agent acting alone (in an individually rational manner) or by any group of agents acting together is called the

A) contract
B) core
C) indifference region

Question 29

Trades that lead to excess demand or excess supply are not

A) feasible trades
B) unblocked trades
C) equilibrium trades

Question 30

What is the implication of assuming that the agents in an economy are selfish and nonsatiated?

Question 31

You quarry granite. You go to the market to trade for limestone. But merchants are offering only sandstone. Society could solve this inefficiency of barter through the use of

A) marble
B) the marketing of fruit instead stone
C) money

Question 32

A curve in the Edgeworth box, which traces out all the efficient trades is called a(n)

A) Pareto curve
B) no-trade curve
C) contract curve

Question 33

Replication is the process of

A) increasing the size of an economy proportionately
B) earning extra-normal profits year after year after year
C) hiring new employees who are similar to current workers

Question 34

What does the marginal rate of substitution have to do with efficient allocations?

Question 35

A competitive equilibrium is a price vector stating ____________ for each good in the economy.

A) at least two prices
B) one price
C) an infinite number of prices

Question 36

The competitive equilibrium allocation is the allocation of goods

A) that does not allocate more than the total amount of goods available in the economy
B) in which agents consume exactly the quantities of the goods that the agents initially possessed
C) determined by a competitive equilibrium

Question 37

Imagine you have an identical twin. You and your sibling are negotiating a trade with a pair of identical twins who are not related to you. The other twins are trying to force you into a trade that would leave you indifferent to your no-trade allocation. You and you sibling

A) have to accept the trade because there is nothing you can do
B) can try to play one of the other twins off against the other to achieve a better allocation
C) should accept the offer because the other twins could force you into an even worse trade

Question 38

Competitive behavior is price-

A) taking behavior
B) making behavior
C) faking behavior

Question 39

Does the contract curve define the set of equilibrium trades?

Question 40

What are the characteristics implied by the existence of a competitive equilibrium?