Chapter 10/General Equilibrium and Economic Welfare



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Chapter 10/General Equilibrium and Economic Welfare

Chapter 10 General Equilibrium and Economic Welfare
MULTIPLE CHOICE

Choose the one alternative that best completes the statement or answers the question.
1) General equilbrium analysis is the study of

  1. how an equilibrium is determined in all markets simultaneously.

  2. how an equilibrium is determined in all closely related markets.

  3. the effects of a change in a market, and all spillover effects in all related markets.

  4. All of the above.

Answer: D

Diff: 0

Topic: General Equilibrium


2) Joe and Rita each have some cookies and milk. Joe is willing to trade 2 cookies for an

additional ounce of milk. Rita is willing to trade 4 cookies for an additional ounce of milk. If trading is possible, which of the following is most likely to occur?

A) Joe will give some milk to Rita in exchange for cookies.

B) Rita will give some milk to Joe in exchange for cookies.

C) No trade will take place since they both prefer to have more milk and fewer cookies.

D) There is not enough information to make any predictions.


Answer: A

Diff: 1


Topic: Trading Between Two People
3) Joe and Rita each have some milk and cookies. Joe's MRS of cookies for milk is 2. Rita's MRS of cookies for milk is 4. Which of the following statements is TRUE?

A) No gains from trade are possible.

B) Both Rita and Joe can be made better off if Rita gives Joe some cookies in exchange for milk.

C) Rita and Joe are on the contract curve.

D) Both Rita and Joe can be made better off if Joe gives Rita some cookies in exchange for milk.
Answer: B

Diff: 1


Topic: Trading Between Two People
4) Gains from trade can only occur when

A) marginal rates of substitutions differ across people.

B) marginal rates of substitution are equal across people.

C) indifference curves are convex.

D) people find themselves on the contract curve.
Answer: A

Diff: 1


Topic: Trading Between Two People

5) Moving away from the contract curve will

A) harm both parties.

B) harm only one of the parties.

C) harm at least one of the parties.

D) harm neither of the parties.


Answer: C

Diff: 1


Topic: Trading Between Two People


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