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 […]
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
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
Any competitive equilibrium is Pareto efficient because, with a competitive equilibrium, A) the marginal rates of substitution are equal for all consumers. B) the price line is the contract curve. C) mutual gains from trade exist. D) the slope of the price line equals the ratio of the MRS for all consumers. ANSWER A […]
In a competitive market, prices adjust until all consumers find themselves A) maximizing utility. B) on the contract curve. C) happy with their original endowment. D) with many opportunities to gain from additional exchange. ANSWER B
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
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. Indicate whether the statement is true or false ANSWER False. The respective bargaining abilities will also play a role in determining the final allocation.
If average cost is positive, A) marginal cost equals average cost. B) marginal cost exceeds average cost. C) marginal cost is less average cost. D) Not enough information is given. ANSWER D
Suppose each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the short run, an increase in the price of shovels will result in A) fewer shovels being purchased. B) more workers being hired. C) a decrease in the firm’s output. D) no change in the firm’s […]
If average cost is decreasing, A) marginal cost equals average cost. B) marginal cost exceeds average cost. C) marginal cost is less than average cost. D) Not enough information is given. ANSWER C
