Question 1

Consider trade between two consumers (1 and 2)and two goods,X and Y.Suppose the total quantities of each good are 100 units.Each consumer has Cobb-Douglas preferences given by:
U(X,Y)= XY
What is the shape of the contract curve,i.e.derive the equation? How does the contract curve change is consumer one has the utility function
U(X,Y)= X²Y
while the other consumer's preferences are as before? Again,derive the equation for the contract curve.

Accepted Answer

The answer of Consider trade between two consumers (1 and...

Question 2

For the following, please answer "True" or "False" and explain why.
-If two grade-school children willingly trade their lunches with one another,we can conclude that at least one of them preferred the other's lunch to his own.

Accepted Answer

Either one or both preferred the other's.If only one preferred the other's,then the other must have been indifferent between the two lunches.

Question 3

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

Accepted Answer

In the context of an Edgeworth Box, a point is Pareto efficient if the marginal rates of substitution (MRS) of the two individuals are equal, their indifference curves are tangent at that point, and no further mutual gains from trade can be made. All these conditions are met at point c, making it a Pareto efficient point.

Question 4

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.Point a is NOT Pareto efficient because

Accepted Answer

At point a, if Al's Marginal Rate of Substitution (MRS) exceeds Bruce's MRS, it means that the two individuals value the goods differently, and there is an opportunity for them to trade in a way that could make at least one person better off without making the other worse off. This situation indicates that point a is not Pareto efficient, as Pareto efficiency is achieved when no individual can be made better off without making someone else worse off. The location of the point within the box (B) or the position of Al's indifference curve relative to the origin (C) are not direct indicators of Pareto efficiency.

Question 5

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Al has no ability to bargain,the final allocation will be at point

Accepted Answer

The answer of 
-The above figure depicts the Edgeworth box...

Question 6

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Bruce has no ability to bargain,the final allocation will be at point

Accepted Answer

The answer of 
-The above figure depicts the Edgeworth box...

Question 7

The First Theorem of Welfare Economics can be expressed as

Accepted Answer

The First Theorem of Welfare Economics states that the competitive equilibrium is efficient, meaning that it maximizes social welfare. Therefore, the correct choice is D. Choice A refers to the concept of frictionless markets, but it is not directly related to the theorem. Choice B is incorrect because the competitive equilibrium involves a reallocation of resources, as prices adjust to equate supply and demand. Choice C is incorrect because not all efficient allocations can be achieved through competition, especially if there are important externalities, public goods, or other market failures.

Question 8

Gains from trade will be possible as long as

Accepted Answer

The answer of Gains from trade will be possible as...

Question 9

When considering trade of two goods between two people,if one person has all the endowment of both goods this allocation

Accepted Answer

The answer of When considering trade of two goods between...

Question 10

Does the contract curve for two traders and two goods always go through the origin (0,0)?

Accepted Answer

The answer of Does the contract curve for two traders...

Question 11

For the following, please answer "True" or "False" and explain why.
-Any point on the contract curve is Pareto efficient regardless of the initial endowment.

Accepted Answer

Efficiency requires that no gains from trade are possible.This is true along the contract curve.

Question 12

Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words,does this point lie on the contract curve?

Accepted Answer

The answer of Can it be efficient for one trader...

Question 13

Explain why having different marginal rates of substitution is necessary for trade to occur.

Accepted Answer

The answer of Explain why having different marginal rates of...

Question 14

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 20 units of clothing but no food.Suppose each has the utility function U = F ∗ C.Derive the contract curve.

Accepted Answer

The answer of Consider a society consisting of just a...

Question 15

The assumptions about tastes and behavior to model the trading between two people do NOT include

Accepted Answer

The assumptions of utility maximization, convex indifference curves, and nonsatiation are all key assumptions in modern microeconomic theory. However, interdependence is not an assumption, but rather a potential outcome of trading between two people. Therefore, choice D is the correct answer.

Question 16

For the following, please answer "True" or "False" and explain why.
-When two people trade their initial endowments to a point on the contract curve,only the level of the endowments will determine the new allocation.

Accepted Answer

The respective bargaining abilities will also play a role in determining the final allocation.

Question 17

Gains from trade will be possible as long as

Accepted Answer

The answer of Gains from trade will be possible as...

Question 18

Robinson starts out with 10 lobsters and five coconuts.Friday starts out with 10 lobsters and 15 coconuts.After trading,Robinson ends up with eight lobsters and 10 coconuts.Robinson feels neither better nor worse off than when he started but cannot get Friday to agree to any more trades.Friday feels better off than when he started.Draw the Edgeworth box consistent with this story.

Accepted Answer

The answer of Robinson starts out with 10 lobsters and...

Question 19

When two people are on the contract curve,the allocation of goods

Accepted Answer

When two people are on the contract curve, it means they have reached an allocation of goods that is both pareto efficient and such that neither individual can be made better off without making the other worse off. Therefore, all options (A), (B), and (C) are correct.

Question 20

Andrew and Sarah are two traders in a pure exchange economy with two goods,Bikes and TVs.Suppose Andrew has preferences given by:
U(B,T)= BT
where B is the number of bikes and T is the number of TVs.Sarah only derives utility from TV,so her utility function can be given by:
V(B,T)= T
Describe the contract curve.

Accepted Answer

The answer of Andrew and Sarah are two traders in...

Quiz 10: General Equilibrium and Economic Welfare

For the following, please answer "True" or "False" and explain why. -If two grade-school children willingly trade their lunches with one another,we can conclude that at least one of them preferred the other's lunch to his own.

-The above figure depicts the Edgeworth Box for two individuals,Al and Bruce.Point c is Pareto efficient because

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.Point a is NOT Pareto efficient because

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Al has no ability to bargain,the final allocation will be at point

-The above figure depicts the Edgeworth box for two individuals,Al and Bruce.If the endowment is at point a,and Bruce has no ability to bargain,the final allocation will be at point

The First Theorem of Welfare Economics can be expressed as

Gains from trade will be possible as long as

When considering trade of two goods between two people,if one person has all the endowment of both goods this allocation

Does the contract curve for two traders and two goods always go through the origin (0,0)?

For the following, please answer "True" or "False" and explain why. -Any point on the contract curve is Pareto efficient regardless of the initial endowment.

Can it be efficient for one trader to consume all units of the goods while the other trader consumes nothing? In other words,does this point lie on the contract curve?

Explain why having different marginal rates of substitution is necessary for trade to occur.

Consider a society consisting of just a farmer and a tailor.The farmer has 10 units of food but no clothing.The tailor has 20 units of clothing but no food.Suppose each has the utility function U = F ∗ C.Derive the contract curve.

The assumptions about tastes and behavior to model the trading between two people do NOT include

For the following, please answer "True" or "False" and explain why. -When two people trade their initial endowments to a point on the contract curve,only the level of the endowments will determine the new allocation.

Gains from trade will be possible as long as

When two people are on the contract curve,the allocation of goods