For a given set of prices, two consumers choose bundles that are off the contract curve. In a competitive market, A) prices will adjust until the consumers choose bundles that are on the contract curve. B) the indifference curves will shift back to the contract curve. C) the contract curve will shift to connect these […]
Suppose two people start with an initial endowment and trade until they obtain a Pareto-efficient allocation with the corresponding price line. What happens when more people who have the same tastes and endowments as the original two traders are included in the Edgeworth box analysis? A) The price line does not change. B) The price […]
In the short run, marginal cost is increasing when A) MPL is decreasing. B) MPL is increasing. C) APL is increasing. D) APL is decreasing. ANSWER A
The so-called “death tax” might A) aim to alter endowments so as to attain an inefficient outcome. B) aim to alter endowments consistent with the First Theorem of Welfare Economics. C) aim to alter endowments consistent with the Second Theorem of Welfare Economics. D) aim to alter prices consistent with the First Theorem of Welfare […]
A windfall profit tax imposed on oil companies would shift the firms’ A) marginal tax rate. B) marginal cost curve. C) average cost curve. D) production function. ANSWER C
Which of the following will cause the marginal cost curve of making cigarettes to shift? A) a $5 million penalty charged to each cigarette maker B) a $1 per pack tax on cigarettes C) a $1 million advertising campaign by the American Cancer Society D) All of the above. ANSWER B
If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE? A) AFC is rising. B) AVC is rising. C) MC > AVC. D) MPL is falling. ANSWER D
The term “born with a silver spoon in his mouth” mistakenly implies A) only monetary endowments allow one to trade with others. B) only the wealthy are strong negotiators in trade. C) endowments are physical. D) endowments differ. ANSWER C
If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE? A) AFC is falling. B) AVC is rising. C) MC > AVC. D) All of the above. ANSWER D
The First Theorem of Welfare Economics can be expressed as A) the competitive equilibrium results only when no transactions costs exist. B) the competitive equilibrium does not involve reallocation of endowments. C) any efficient allocations can be achieved by competition. D) the competitive equilibrium is efficient. ANSWER D
