Economic

Q: Consider the information below:For Group A the cost of attaining an educational level y isCA(y) = $6,000yand for Group B the cost of attaining that level isCB (y) = $10,000y.Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*.The highest level of y* that can be set and still have the high-productivity people choose to meet it isA) 90.B) 60.C) 30.D) 22.5.E) 15.

Q: Consider the information below: For Group A the cost of attaining an educational level y is CA(y) = $6,000y and for Group B the cost of attaining that level is CB (y) = $10,000y. Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*. An employer who only wants to hire individuals who find learning less costly can do so by choosing y* to be anywhere between A) 7 and 14. B) 8 and 13 1/3. C) 10 and 16. D) 13 1/3 and 20. E) 14 and 20.

Q: Consider the information below: For Group A the cost of attaining an educational level y is CA(y) = $6,000y and for Group B the cost of attaining that level is CB (y) = $10,000y. Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*. If the threshold educational level y* is set at 14, A) only individuals in Group A will attain it. B) only individuals in Group B will attain it. C) individuals in both groups will attain it. D) no individuals will attain it. E) some fraction of individuals in each group will attain it.

Q: Consider the information below:For Group A the cost of attaining an educational level y isCA(y) = $6,000yand for Group B the cost of attaining that level isCB (y) = $10,000y.Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*.If the threshold educational level y* is set at 7,A) only individuals in Group A will attain it.B) only individuals in Group B will attain it.C) individuals in both groups will attain it.D) no individuals will attain it.E) some fraction of individuals in each group will attain it.

Q: Consider the information below: For Group A the cost of attaining an educational level y is CA(y) = $6,000y and for Group B the cost of attaining that level is CB (y) = $10,000y. Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*. If the threshold educational level y* is set at 10, A) only individuals in Group A will attain it. B) only individuals in Group B will attain it. C) individuals in both groups will attain it. D) no individuals will attain it. E) some fraction of individuals in each group will attain it.

Q: Consider the information below:For Group A the cost of attaining an educational level y isCA(y) = $6,000yand for Group B the cost of attaining that level isCB (y) = $10,000y.Employees will be offered $50,000 if they have y < y*, where y* is an education threshold determined by the employer. They will be offered $130,000 if they have y > y*.The lowest level of y* that can be set and still have only the high-productivity people meet it isA) 16.B) 13 1/3.C) 13.D) 8.E) 0.

Q: Which of the following statements is NOT a reason that the cost of a college education is greater for the low-productivity group than for the high-productivity group? A) The wages they give up by going to college instead of working will tend to be higher for them. B) They may have to pay for tutoring services or other extra help to accomplish the same educational goal. C) They may have to take remedial classes, which would increase the length of time it takes to accomplish the same goal. D) Even if they take no remedial classes, they may have to spend more time studying for each class, and the value of their leisure time needs to be considered in the calculation. E) Based on previous signaling, such as from their high school grades or SATs, they may receive less merit-based financial assistance, and thus be under a greater financial strain during their college years.

Q: The completion of a degree or course of study is a good labor market signal A) only if what is learned in that educational process relates directly to the job the individual is being considered for. B) only if there is a positive correlation between academic success and wage income. C) primarily because individuals develop good habits in college that serve them well in other areas later on. D) because all individuals have the opportunity (in the United States) to pursue higher education. E) because people who possess the traits that make them more productive in the workplace have an easier time completing an education than those who don't.

Q: If grades are to be a successful signal to potential employers of a student's qualities, then higher grades must be A) easier for high-productivity students to earn than for low-productivity students to earn. B) easier for low-productivity students to earn than for high-productivity students to earn. C) easy for employers to check. D) used for all future promotions within the firm. E) often referred to in the hiring process.

Q: Explain the nature and consequences of asymmetric information for each of the following cases. What options are available in each instance to reduce the problem? a. medical insurance b. issuance of credit cards c. professional athletes d. market for used appliances

Q: The market for used cars in a particular region includes both high-quality and low-quality cars. High-quality cars are sold primarily to quality-sensitive customers, while low-quality cars are sold to price-sensitive buyers. The submarkets for high-quality and low-quality cars can be described by the supply and demand curves: QDH = 160,000 12.5PH QSH = - 48,000 + 13.5PH QDL = 110,000 - 12.5PL QSL = 20,000 + 10PL, where QDH, QSH refer to the quantities demanded and supplied of high-quality cars, QDL, QSL refer to the quantities demanded and supplied of low-quality cars, PH and PL refer to the prices of high-quality and low-quality cars. All quantities are measured in cars per month, prices are measured in dollars. a. Assuming that buyers and sellers are both able to distinguish low-quality and high-quality cars, determine the price and quantity that will prevail in each submarket. b. Examine the case where sellers are able to accurately determine used-car quality but buyers are not. You may assume that buyers assume that all cars are of average quality so that an average demand curve is appropriate. Determine the price and quantity in each submarket. c. Using diagrams, analyze the additional developments in the market until final long-run equilibrium is reached. You must describe the eventual outcome, but no calculations are required for this part of the problem.

Q: As part of the most recent collective bargaining agreement with state employees, a state government must offer dental insurance at "reasonable, nonprofit rates." The state plans to self insure in place of using a private insurance company. Statistical evidence suggests that the average household currently spends $300 per year for corrective dental work and $80 for routine checkups. Administrative costs are expected to average $20 per family. The collective bargaining agreement dictates that the plan's coverages and rates be fixed for a period of three years. The auditor considers the choice of the plan to be extremely important. Consequently, the auditor has asked you to evaluate the three proposals listed below in terms of their propensity to result in adverse selection and/or moral hazard. Proposal 1 would charge a $400 premium with no deductible. Coverage is extended to preexisting conditions, but to cover the nondeductible clause, routine checkups are not covered. Proposal 2 charges a $200 premium with a $200 deductible. The plan does not cover preexisting conditions, but does cover routine office visits. Proposal 3 charges a $150 premium with a $150 deductible. This plan doesn't cover preexisting conditions or routine checkups. The collective bargaining agreement dictates that participation in the plan must be at the employee's option.

Q: How does the federal government avoid the asymmetric information problem associated with providing health care to people over 65 years of age? A) Health care is standardized and is the same for all people over 65 years of age. B) Health insurers rely on the reputation of the covered individuals. C) Participation in the Medicare program is mandatory for all people over 65 years of age. D) Health information about people enrolled in the Medicare program is publically available.

Q: In the text, the authors present evidence that the market for free agents in professional baseball is subject to the lemons problem. How could a prospective free agent overcome this problem when seeking a new contract? A) Agree to accept a lower salary with a new team. B) Rely on standardization to avoid the asymmetric information problem. C) Decide to negotiate only with their current team. D) Develop a reputation as a reliable and productive player.

Q: How do online auction sites like Ebay attempt to overcome the asymmetric information problems associated with goods that the buyer cannot personally inspect before purchase? A) The online auction firm only allows high-quality merchandise to be sold at their site. B) The previous performance (reputations) of the buyer and seller are posted for public review. C) Buyers can take receipt of any goods before they have to pay the seller. D) all of the above

Q: When asymmetric information problems drive high quality products from a market, we refer to this situation as: A) adverse selection. B) moral hazard. C) a lemons problem. D) A and C are correct. E) B and C are correct.

Q: You want to add a new room on your house, but you are not familiar with the local building contractors and are not sure who to consider for the job. If you ask your friends for referrals, you are using their past experience as a way to evaluate the ________ of the builders. A) efficiency wages B) moral hazard C) asymmetric information D) reputation

Q: In the arena of asymmetric information, standardization (for example, menus at McDonald's restaurants) is a substitute for A) quality. B) government regulation. C) reputation of individual sellers. D) firms' distinguishing among buyers. E) firms' segregation of buyers.

Q: Medical histories used by insurance firms allow them to A) identify high-risk people, so they can be denied insurance and premiums kept down for low risk people. B) increase the number of policies issued, raising premiums as a result. C) increase the number of policies issued, lowering premiums as a result. D) lower the number of policies issued, raising premiums. E) increase market power in the insurance industry, raising premiums.

Q: Credit histories allow firms to A) identify high-risk borrowers, so they can be eliminated and interest rates kept down for others. B) increase the number of credit cards issued, and interest rates go up as a result. C) increase the number of credit cards issued, and interest rates go down as a result. D) lower the number of credit cards issued, and interest rates go up as a result. E) increase market power in the credit card industry, raising interest rates.

Q: When firms participate in group health insurance for all employees, it A) raises rates for everyone, because it brings unhealthy people into the pool. B) raises rates for unhealthy people. C) may lower rates for all people to the extent that it keeps healthy people in the pool. D) prevents unhealthy people from "selecting out," to the detriment of healthy people. E) increases the amount of information available to insurers about the population.

Q: When states make car insurance mandatory for all drivers, it A) raises rates for everyone because it brings bad drivers into the pool. B) raises rates for high-risk drivers. C) may lower rates for all drivers to the extent that it keeps low-risk drivers in the pool. D) prevents high-risk drivers from "selecting out," to the detriment of low-risk drivers. E) increases the amount of information available to insurers about the population.

Q: Augustus bought his BMW convertible as a new car in 1998 and knows that it is in excellent condition. He now wants to sell it and knows that there are many other similar cars on the used car market that are lemons. As a result: A) he should be able to sell my car at a premium price because of its excellent condition. B) he will have to accept a lower price for his car because buyers might think that it is a lemon. C) he will not be able to sell his car unless he offers some sort of guarantee. D) he will get the best price for his car by selling it to a dealer.

Q: Assume that a particular state has decided to outlaw the sharing of individuals' credit histories as an illegal invasion of privacy. As a result of this action we would expect the A) cost of borrowing money to rise. B) number of loans to unworthy credit risks to rise. C) problems of asymmetric information to become more severe. D) all of the above E) none of the above

Q: Which of the following represent examples of adverse selection? A) Unhealthy people are more likely to want health insurance. B) Careless drivers purchasing extra auto insurance. C) Risk averse individuals choosing to buy extra insurance. D) all of the above E) A and B only

Q: Consider a market in which high-quality and low-quality television sets are sold. Before consumers make a purchase, they do not know the quality of the sets, but the sellers do know. As compared to a situation where both consumers and sellers know the quality of the sets, this situation would A) cause no change in the ratio of low to high-quality sets sold. B) increase the fraction of high-quality sets sold. C) increase the fraction of low-quality sets sold. D) cause the average price of goods sold to rise.

Q: Assume that both high and low quality appliances are sold in the used appliance market. If we assume asymmetric information with sellers having more information regarding quality than buyers, which of the following is necessarily true? The A) fraction of high quality appliances will be greater than under perfect knowledge. B) fractions of high and low quality appliances will be the same as with perfect information. C) fraction of high quality appliances will be less than with perfect information. D) none of the above

Q: When sellers have more information about products than buyers do, we would expect A) sellers to get higher prices for their goods than they could otherwise. B) buyers to pay lower prices for goods than they would otherwise. C) high-quality goods to drive low-quality goods out of the market. D) low-quality goods to drive high-quality goods out of the market.

Q: The problem of adverse selection in health insurance leads to a situation in which A) health insurance covers inappropriate items for the population it serves. B) overinsurance of the premium-paying population occurs. C) underinsurance of the premium-paying population occurs. D) the percentage of the premium-paying population that is healthy rises, squeezing unhealthy individuals out of the market. E) the percentage of the premium-paying population that is unhealthy rises, squeezing healthy individuals out of the market.

Q: John is a 55-year-old male smoker, about 50 pounds overweight, who has high blood sugar and drinks to excess a couple of times each month. Because of adverse selection in health insurance, A) John is less likely to buy health insurance than the average person, because the average person's policy premiums will be based on his risk, not the average risk. B) John is more likely to buy health insurance than the average person, because his policy premiums will be based on the average risk, not his personal risk. C) when John gets health insurance, he will be less likely to take care of himself. D) when John gets health insurance, he will be more likely to take care of himself. E) if John doesn't have health insurance already, he will not be able to get it.

Q: Julia is a 28-year-old nonsmoking, non-drinking female of normal weight. Because of adverse selection in health insurance, A) She will be charged less for her premiums than people who are higher risks. B) She is less likely to buy health insurance than the average person, because policy premiums are based on expected medical expenditures of people who are less healthy than she is. C) When she get health insurance, she will be less likely to take care of herself. D) She must get health insurance early in life, and is likely to lose health insurance if she smokes, drinks to excess, or gains weight. E) She is more likely than the average person to buy health insurance, because she is more likely to be offered it.

Q: The problem of adverse selection in insurance results in a situation in which A) people choose inappropriate or inadequate coverage because they do not understand the complex information in the policies. B) people choose too much coverage because they do not understand the complex information in the policies. C) people choose too little coverage because they do not understand the complex information in the policies. D) unhealthy people become more likely to buy insurance than healthy people, which drives premiums up, which drives even more healthy people away from the market. E) healthy people become more likely to buy insurance than unhealthy people, which drives premiums up, which drives even more unhealthy people away from the market even though they are the ones who need it most.

Q: Used cars sell for much less than new cars because A) of imperfect competition in the automobile industry. B) buyers know much more about the quality of used cars than sellers do. C) sellers know much more about the quality of used cars than buyers do. D) physical depreciation of used cars is very high. E) of licensing arrangements by the government.

Q: Consider a potential, voluntary exchange between two people. Assume that both people have complete information about each other's preferences and that there are no transaction costs. Consumers A and B have between them 9 units of X and 15 units of Y. Initially, A has 6 of X and 10 of Y, and B has 3 of X and 5 of Y. Consumer A's marginal rate of substitution of X for Y is 2 and B's marginal rate of substitution of X for Y is 1/3. Is there room for a mutually beneficial, voluntary exchange? Determine which consumer would trade for more X and which consumer would trade for more Y. If trade takes place, can you explain the terms of trade?

Q: Imagine a primitive society in which there are two goods: food and shelter. The utility functions for two representative members of the society, Jane and Paul, are given below. Jane's utility function: UJ = 25F0.5S0.5 Paul's utility function: UP = 50F0.75S0.25 where F = units of food, and S = units of shelter. a. Determine the marginal rate of substitution for each individual. b. The current prices of food and shelter are $12 and $6, respectively. Determine the proportions in which Jane and Paul should consume food and clothing to achieve an exchange equilibrium.

Q: Sarah and Jane are two representative individuals living in an economy that produces two goods, X and Y. Sarah's and Jane's utility functions are given as: Sarah: US = 100X0.5Y0.5 Jane: UJ = 50X0.4Y0.6 The market determined prices of X and Y are $10 and $20, respectively. Current outputs are 58 units of X per time period and 36 units of Y. Jane's current income is $600 per time period, while Sarah's income is $700 per time period. a. Write expressions for Sarah and Jane's marginal rates of substitution. b. Determine the quantities of X and Y that Sarah and Jane should consume in equilibrium. c. Do the values calculated in part (b) satisfy the conditions for equilibrium in exchange? Explain using numbers. d. Examine your answers in parts (b) and (c). If equilibrium has not been achieved, what would be necessary to reach equilibrium? If equilibrium has been achieved, comment on the process by which equilibrium was reached.

Q: Two individuals, A and B, are free to engage in trade of clothing and food. Initially, A has 12 units of clothing and 9 units of food, and B has 8 units of clothing and 11 units of food. The individuals have the following utility functions in clothing C and food F: UA = 0.15QC QF UB = 0.08QC QF where QF represents units of food, QC represents units of clothing, and U represents utility. Determine if a mutually beneficial trade is possible between A and B. If so, who would trade for what?

Q: Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joe's marginal utility of apples is 3, and his marginal utility of oranges is 5. Jane's marginal utility of apples is 6, and her marginal utility of oranges is 10. The current price of apples is $4 and the current price of oranges is $5. To reach a competitive equilibrium, the required price adjustment is: A) a decrease in the apple price relative to the orange price. B) a decrease in the orange price relative to the apple price. C) no change in the relative prices. D) an increase in both prices.

Q: Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joe's marginal utility of apples is 3, and his marginal utility of oranges is 5. Jane's marginal utility of apples is 6, and her marginal utility of oranges is 10. If the current price of apples is $4 and the current price of oranges is $5, then there is an: A) excess demand for apples and an excess supply of oranges. B) an excess demand for oranges and an excess supply of apples. C) equilibrium in the market with no excess supply or demand for either good. D) an excess supply of apples and oranges.

Q: Use the following statements to answer this question: I. The first theorem of welfare economics refers to efficient allocation of goods across groups of consumers, and it does not consider the problem of efficient production of these goods. II. The only way to achieve an efficient allocation of goods is to use competitive markets. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are true.

Q: For an individual consumer, a corner solution may be optimal such that MRS and MRT are not equal, A) but this is not possible in an Edgeworth Box due to the transitivity of preferences. B) but this is not possible in an Edgeworth Box because price ratios must be positive. C) and this may also occur in an Edgeworth Box. D) and this may only occur in an Edgeworth Box under the perfect complements case.

Q: Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joe's marginal utility of apples is 3, and his marginal utility of oranges is 5. Jane's marginal utility of apples is 9. The current allocation is necessarily efficient if: A) the price of apples is 60% of the orange price. B) Jane's marginal utility of oranges is 6 at this point. C) Joe's MRS equal the MRT. D) Jane's marginal utility of oranges is 15 at this point.

Q: The statement: "If everyone trades in the competitive marketplace, all mutually beneficial trades will be completed, and the resulting equilibrium allocation of resources will be economically efficient." is formally known as: A) the law of supply and demand. B) the first theorem of supply and demand. C) the first theorem of welfare economics. D) the first theorem of efficiency in economics.

Q: In an Edgeworth box, all points of efficiency occur at the A) intersections of the indifference curves. B) the points of tangency between the sets of indifference curves. C) in the midpoint of the diagram. D) at any point other than the intersections of the indifference curves.

Q: Once a point on a contract curve has been chosen, A) it is possible to make both individuals better off. B) it is possible to make one individual better off only at the expense of the other. C) there is no change that would make both individuals worse off. D) it is impossible for both individuals to have more of both goods.

Q: A move from one point on a contract curve to another point on the contract curve will make A) both individuals better off. B) both individuals worse off. C) one individual better off and the other individual worse off. D) the goods more expensive.

Q: All possible efficient allocations of 2 goods between 2 people are located on A) the indifference curve. B) the contract curve. C) the production possibilities frontier. D) the budget line.

Q: Why does perfect competition guarantee a Pareto optimal distribution of goods between two people? Under perfect competition, A) everyone has the same preferences. B) everyone faces the same prices. C) everyone consumes the same quantity of both goods. D) goods are homogeneous.

Q: If the initial distribution of labor and capital is Pareto optimal, which of the following statements is TRUE? A) It is possible to reallocate labor and capital across industries so as to increase the production of one good without decreasing the production of another good. B) It is possible to reallocate labor and capital across industries so as to increase the production of one good, but only by reducing the production of another good. C) It is possible to reallocate labor and capital across industries so as to increase the production of every good. D) none of the above

Q: Suppose there is a water shortage, and the governor proposes that the government distribute equal quantities of water to each person at no cost to the consumers. If consumers were forbidden to trade water, would such a distribution be Pareto optimal? A) Yes, because each person has the same amount of water as everyone else. B) Yes, because everyone would be receive their water for free. C) Not necessarily, as people may differ in their marginal rates of substitution between water and other goods. D) It is impossible to determine without knowing the price of water. E) none of the above

Q: If the initial distribution of two goods between two people is Pareto optimal, which of the following statements is TRUE? A) It is possible to reallocate the goods between the two people so as to increase the utility of both people. B) It is possible to reallocate the goods between the two people so as to increase the utility of one person without decreasing the utility of the other. C) It is possible to reallocate the goods between the two people so as to increase the utility of one person, but only at the expense of the other person. D) It is impossible to reallocate the goods between the two people so as to increase either person's utility. E) none of the above

Q: Scenario 3:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 4 tee shirts and 4 candies. Sally has 3 tee shirts and 3 candies.Is the current distribution Pareto optimal?A) Yes.B) No, as Sam has more of both goods.C) No, as it is possible to find a way for Sam to sell tee shirts to Sally (and receive candy in return) that would make both of them better off.D) No, as it is possible to find a way for Sam to sell candy to Sally (and receive tee shirts in return) that would make both of them better off.E) Without knowing the prices of tee shirts and candy we cannot determine if this distribution is Pareto optimal.

Q: Scenario 3:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 4 tee shirts and 4 candies. Sally has 3 tee shirts and 3 candies.What is Sally's marginal rate of substitution of tee shirts for candy at the current distribution?A) 9/4.B) 2C) 4/9.D) It is impossible to determine without the prices of each commodity.

Q: Scenario 3:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 4 tee shirts and 4 candies. Sally has 3 tee shirts and 3 candies.What is Sam's marginal rate of substitution of tee shirts for candy at the current distribution?A)2B) 7/5.C) 5/7.D) It is impossible to determine without the prices of each commodity.

Q: Scenario 2:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.Is the current distribution Pareto optimal?A) Yes.B) No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off.C) No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off.D) Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal.

Q: Scenario 2:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.What is Sally's marginal rate of substitution of tee shirts for candy at the current distribution?A) 7/2.B) 2C) 1/2.D) It is impossible to determine without the prices of each commodity.

Q: Scenario 2:Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below.Sam tee shirts MU(tee shirts) Candy MU(Candy) 1 10 1 6 2 9 2 5 3 8 3 4 4 7 4 5 5 6 5 4Sally tee shirts MU(tee shirts) Candy MU(Candy) 1 24 1 12 2 19 2 9 3 18 3 8 4 14 4 7 5 10 5 3There are 7 candies and 7 tee shirts total in the economy.Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies.What is Sam's marginal rate of substitution of tee shirts for candy at the current distribution?A)3B)2C) 1/4.D) It is impossible to determine without the prices of each commodity.

Q: To be certain that exchange between people is mutually beneficial, we generally assume A) not all people are free to enter the market at will, but once in they are free to make any offer to trade. B) all people have complete information about each other's preferences. C) there are no transaction costs. D) both B and C E) both A and B

Q: Which of the following is true at the exchange equilibrium between two individuals? A) Their marginal rates of substitution are equal. B) The slopes of the individuals' indifference curves are equal. C) Both individuals' marginal rates of substitution are equal to the ratio of the prices of the goods. D) A and B only E) A, B, and C are all true.

Q: The contract curve in an Edgeworth Box diagram illustrates A) the only efficient allocation of goods among individuals. B) all possible efficient allocations of goods among individuals. C) all equitable distributions of goods among individuals. D) the only equitable distribution of goods among individuals.

Q: The curve in the diagram below is called: A) the contract curve. B) the utility possibilities frontier. C) the production possibilities frontier. D) the production contract curve.

Q: The Edgeworth box illustrates possibilities for Karen and James to increase their satisfaction by trading goods. If point A gives the initial allocation of food and clothing, a movement into the shaded area: A) leaves Karen better off, but James worse off. B) leaves James better off, but Karen worse off. C) leaves James and Karen worse off. D) leaves James and Karen better off.

Q: In a problem involving exchange, the contract curve shows A) all exchanges that make both parties better off. B) the one exchange that makes both parties better off. C) all possible allocations of goods between both parties. D) all possible efficient allocations between both parties.

Q: An efficient allocation of goods in an exchange economy means that A) goods were produced by the most efficient technology available. B) no one can be made better off without making somebody else worse off. C) those made worse off are not hurt as badly as the benefits resulting from those made better off. That is, there is a net positive gain. D) in a particular production process one gets the maximum output for a given input.

Q: An allocation in which one person can be made better off only by making someone else worse off is A) inefficient. B) efficient. C) a partial equilibrium. D) a general equilibrium.

Q: Scenario 1: Irrespective of the amount of cheese doodles and pretzels that Sam consumes, his marginal rate of substitution of cheese doodles for pretzels is 2. Also, irrespective of the amount of cheese doodles and pretzels that Sally consumes, her marginal rate of substitution of cheese doodles for pretzels is 3. Suppose instead that Sam is initially allocated 3 cheese doodles and 3 pretzels, whereas Sally is initially allocated 6 cheese doodles and 10 pretzels. Which of the following statements is TRUE? A) This allocation is Pareto optimal. B) This allocation is not Pareto optimal as Sally and Sam have unequal amounts of each good. C) The allocation is not Pareto optimal as Sally would be willing to exchange two pretzels for one cheese doodle and be better off, without making Sam worse off. D) The allocation is not Pareto optimal as Sam would willing exchange one pretzel for two cheese doodles and be better off, without making Sally worse off.

Q: Scenario 1: Irrespective of the amount of cheese doodles and pretzels that Sam consumes, his marginal rate of substitution of cheese doodles for pretzels is 2. Also, irrespective of the amount of cheese doodles and pretzels that Sally consumes, her marginal rate of substitution of cheese doodles for pretzels is 3. Initially Sam and Sally are allocated 10 cheese doodles and 10 pretzels each. Which of the following statements are TRUE? A) The initial allocation is Pareto optimal as it is equitable. B) The initial allocation is Pareto optimal as Sally and Sam have equal amounts of both goods. C) The allocation is not Pareto optimal. An allocation that gave Sam all of the cheese doodles and Sally all of the pretzels would make both of them better off. D) The allocation is not Pareto optimal. An allocation that gave Sam four of the cheese doodles and sixteen of the pretzels (leaving Sally the rest) would make both of them better off.

Q: The industry analysts have long recognized that there is a high degree of complementarity between automobile tires and gasoline. A recent study done by an automobile industry trade group estimated the following supply and demand functions:QDT = 5,250,000 - 12,500PT - 750,000PGQST = -350,000 + 11,750PTQDG = 80,500,000 - 30,000,000PG - 2,500PTQSG = 35,000,000 + 15,000,000PG,where ODT and QST refer to quantities of tires demand and supplied each month measured in sets of four, QDG and QSG refer to quantities of gasoline demanded and supplied each month measured in gallons, PG is the price of gasoline per gallon, and PT is the price per set of four tires.a. Calculate the equilibrium price and quantity that will prevail in both the tire and gasoline markets. (Hint: Recall that QD must equal QS in each market.)b. Assume that a recession causes the demand curve for gasoline to shift leftward as follows:QDG = 76,000,000 - 30,000,000PG - 2,500PTCalculate the initial impact of this change in demand on the gasoline and tire markets. (You need calculate only one change in P and Q for each market.)c. Discuss the changes that will occur after the initial round to move each market back to a stable equilibrium. Your answer to part (c) requires no calculations, but graphs would help convey your understanding of the process.

Q: Coffee and donuts are complements in consumption. Suppose the economy expands so that consumer income increases, and coffee is a normal good. What impact does this change in the coffee market have on the donut market under a general equilibrium analysis? A) Donut demand shifts rightward and donut price and quantity increase B) Donut demand shifts rightward, donut price increases, and donut quantity declines C) Donut demand shifts leftward, donut price declines, and donut quantity increases D) Donut demand shifts leftward and donut price and quantity decline

Q: Coffee and donuts are complements in consumption. Suppose bad weather in the coffee producing regions of the world, which shifts the coffee supply curve leftward. How do the general equilibrium price and quantity outcomes compare to the partial equilibrium outcomes for this situation? A) General equilibrium price and quantity are higher B) General equilibrium price is higher and quantity is lower C) General equilibrium price is lower and quantity is higher D) General equilibrium price and quantity are lower

Q: Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal gasoline tax to $1 per gallon. Initially, the gasoline price rises due to the tax, and the demand curve for bicycles shifts rightward because these goods are substitutes. Then, the bicycle price rises, and the demand curve for gasoline shifts rightward. Assuming the general equilibrium is achieved in both markets after these two steps, which of the following statements is NOT true? A) Partial equilibrium analysis only focuses in the first-round changes in the gasoline market (ignoring the secondary effects that arise from changes in the bicycle market). B) Partial equilibrium analysis would predict a larger shift in the price and quantity demanded for gasoline than a general equilibrium analysis. C) The price increase in gasoline is larger under the general equilibrium approach, but the change in the quantity of gasoline demanded is smaller than under partial equilibrium analysis. D) All of these statements are true.

Q: Gasoline and bicycles are substitutes in consumption. Suppose we increase the federal gasoline tax to $1 per gallon. What are the initial changes that result from the tax as these markets adjust to a new general equilibrium? A) Gasoline price rises, demand for bicycles shift s leftward. B) Gasoline price rises, demand for bicycles shifts rightward. C) Gasoline price rises, move downward along bicycle demand curve. D) Gasoline price rises, move upward along bicycle demand curve.

Q: Which of the following is true? Partial equilibrium analysis will A) overstate the impact of a tax for both substitutes and complements. B) understate the impact of a tax for both substitutes and complements. C) understate the impact of a tax for complements and overstate the impact for substitutes. D) understate the impact of a tax for substitutes and overstate the impact for complements.

Q: The markets for movie theater tickets and videocassette rentals are highly interdependent. Suppose that a tax is imposed on movie theater tickets. The type of analysis that examines the effects of this tax on the markets for movie theater tickets and videocassettes simultaneously is called A) macroeconomics. B) general equilibrium analysis. C) partial equilibrium analysis. D) full market analysis. E) psychoanalysis.

Q: The United States and Brazil are competitors in the world soybean market. In the late 1960s and early 1970s, the Brazilian government developed regulations designed to encourage Brazilian soybean production and exports. An unanticipated effect of the Brazilian regulations was to stimulate U.S. soybean production and exports. The type of economic analysis that would explain and predict these effects is called A) closed economy macroeconomics. B) international economics. C) partial equilibrium analysis. D) full market analysis. E) general equilibrium analysis.

Q: General equilibrium analysis is different from partial equilibrium analysis in that general equilibrium analysis A) explicitly takes feedback effects into account and partial equilibrium analysis does not. B) does not take into consideration specific problems, but partial equilibrium analysis does. C) takes into consideration specific problems, but partial equilibrium analysis does not. D) allows one to arrive at a specific conclusion, but partial equilibrium analysis does not.

Q: Which of these is NOT an exercise in general equilibrium analysis? A) A discussion of factors within the wheat market that influence wheat prices B) An analysis of the effects of changes in oil prices upon the natural gas market C) An evaluation of relationships between the markets for tires and automobiles D) none of the above

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