Gains from trade will be possible as long as A) people have different endowments. B) people place different values on some goods. C) marginal rates of substitution are equal across individuals. D) excess supply equals excess demand. ANSWER B
Gains from trade will be possible as long as A) levels of utility differ. B) utility functions differ. C) marginal rates of substitution differ. D) endowments differ. ANSWER C
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production? A) MC = AVC B) MC = AC C) MC > AFC D) All of the above. ANSWER A
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
If only two people are trading their endowments and no production is possible, then the equilibrium they reach will A) be on their contract curve. B) result in unequal marginal rates of substitution for the two people. C) result in one person being worse off than with his or her endowment. D) All of the […]
When two people are on the contract curve, the allocation of goods A) cannot be improved. B) is Pareto efficient. C) is such that neither individual can be made better off without making the other worse off. D) All of the above. ANSWER D
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 […]
Why might a police officer not pull over someone speeding two miles over the speed limit? A) The explicit costs of stopping the driver over are too high. B) The opportunity costs of stopping the driver are too high. C) The opportunity costs of topping he driver are too low. D) The explicit costs of […]
The saying “What’s that got to do with the price of tea?” reflects A) two markets where general equilibrium analysis would be most useful. B) two markets where general equilibrium analysis likely won’t be very useful. C) two markets where the products are clearly closely related. D) two markets where firms are incredibly greedy. […]
Reparations for slavery in the United States would A) be consistent with the Pareto principle. B) be inconsistent with the Pareto principle. C) have nothing to do with the Pareto principle. D) be unconstitutional. ANSWER B