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At a birthday party, all the little boys and girls were given various gifts. Some of the boys and girls traded their gifts with one another until everyone was completely happy. This example reflects:


A) input efficiency.
B) output efficiency.
C) altruistic efficiency.
D) exchange efficiency.

E) B) and C)
F) All of the above

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(Figure: Clothing and Food III) Suppose the marginal rate of transformation at point B is 1/2 and the marginal product of capital in the food industry is 10. What is the marginal product of capital in the clothing industry? Now suppose the marginal rate of transformation at point A is 2 and the marginal product of labor in the clothing industry is 8. What is the marginal product of labor in the food industry? (Figure: Clothing and Food III) Suppose the marginal rate of transformation at point B is 1/2 and the marginal product of capital in the food industry is 10. What is the marginal product of capital in the clothing industry? Now suppose the marginal rate of transformation at point A is 2 and the marginal product of labor in the clothing industry is 8. What is the marginal product of labor in the food industry?

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MRT is the marginal product of capital i...

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(Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by (Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P<sup>2</sup>. a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient? = C and his marginal utility of cream is given by (Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P<sup>2</sup>. a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient? = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by (Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P<sup>2</sup>. a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient? = 2CP, and her marginal utility of cream is given by (Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P<sup>2</sup>. a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient? = P2. (Figure: Peaches and Cream I) Billy Joe's marginal utility of peaches is given by = C and his marginal utility of cream is given by = P, where C is cups of cream and P is pounds of peaches. Bobby Sue's marginal utility of peaches is given by = 2CP, and her marginal utility of cream is given by = P<sup>2</sup>. a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient? a. Calculate Billy Joe's and Bobby Sue's marginal rate of substitution of peaches for cream. b. Suppose Billy Joe has 2 cups of cream and 2 pounds of peaches and Bobby Sue has 2 cups of cream and 4 pounds of peaches. Is this allocation Pareto-efficient? c. Suppose Billy Joe has 1 cup of cream and 5 pounds of peaches and Bobby Sue has 3 cups of cream and 1 pound of peaches. Is this allocation Pareto-efficient?

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a. Billy Joe's MRS = marginal utility of...

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Your economics professor decides to cancel one of three scheduled tests because a large number of snow days led to cancellation of classes. Of the 30 students in the class, 29 of them are in favor of this idea and 1 is not in favor. The new number of exams ____ a Pareto improvement because ____.


A) is; almost all of the students are better off
B) is; the total utility increases
C) is not; one student is worse off
D) is not; the total utility decreases

E) B) and D)
F) A) and B)

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Answer the following questions. a. Li's marginal rate of substitution of hamburger for steak is 1/4, and Zhang's marginal rate of substitution of hamburger for steak is 2. Is the allocation of hamburger and steak Pareto-efficient between Li and Zhang? If not, explain how Li and Zhang could be made better off. b. Ying and Fei's marginal rate of substitution of purses for shoes is 2.5. What is the price ratio of purses to shoes?

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a. Pareto efficiency requires that the M...

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Farmers can use their land to grow corn or cotton. Because of the increased demand for moisture-wicking sportswear, the demand for cotton has decreased. What are the general equilibrium effects in the markets for corn and for cotton?


A) The price of cotton will fall because of the decrease in demand, and farmers will plant less cotton. The decrease in the supply of cotton will raise both cotton prices and the demand for corn.
B) The price of cotton will fall because of the decrease in demand, and farmers will plant less cotton and more corn. The increase in the supply of corn will push down corn prices.
C) The price of cotton will fall because of the decrease in demand, and farmers will plant less corn. The decrease in the supply of corn will raise corn prices and depress the demand for cotton.
D) The price of cotton will rise because of the decrease in demand, and farmers will plant more cotton and less corn. The decrease in the supply of corn will push up corn prices.

E) B) and D)
F) A) and B)

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Which of the following situations is an example of general equilibrium analysis?


A) An excise tax is placed on cigarettes reducing the supply of cigarettes and leading to higher cigarette prices.
B) A severe frost destroys a significant portion of the coffee crop, leading to higher coffee prices. The higher coffee prices increase the demand for tea, resulting in higher tea prices. The higher tea prices, in turn, cause the demand for coffee to rise even more, further increasing the price of coffee.
C) A decrease in the demand for peanuts causes both the equilibrium price and quantity of peanuts to decrease. As a result, peanut farmers reduce their peanut output and supply decreases.
D) As fuel costs rise, airlines' costs of production rise. Higher production costs drive profits down, leading to higher air fares and fewer flights.

E) A) and B)
F) A) and C)

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The New Democratic Party in Canada is concerned that the Canadian oil boom has increased the exchange rate, thereby harming the manufacturing sector by making it less competitive in international markets. This concern highlights the notion of _____ and can best be studied by using _____ analysis.


A) Dutch disease; general equilibrium
B) Dutch disease; partial equilibrium
C) Baumol's cost disease; general equilibrium
D) Baumol's cost disease; partial equilibrium

E) B) and D)
F) C) and D)

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(Figure: Crumpets and Tea II) If the economy is at point B, the input mix is: (Figure: Crumpets and Tea II) If the economy is at point B, the input mix is: A) not Pareto-efficient; a movement to point C or point D would be a Pareto improvement. B) Pareto-efficient; a movement to any other point would be Pareto-inefficient. C) not Pareto-efficient; only a movement to point D would be a Pareto improvement. D) not Pareto-efficient; a movement to point C or point D would be Pareto-inefficient.


A) not Pareto-efficient; a movement to point C or point D would be a Pareto improvement.
B) Pareto-efficient; a movement to any other point would be Pareto-inefficient.
C) not Pareto-efficient; only a movement to point D would be a Pareto improvement.
D) not Pareto-efficient; a movement to point C or point D would be Pareto-inefficient.

E) All of the above
F) A) and D)

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Higher education and textbooks are complementary goods. The government decides to subsidize public college education. Compare the partial and general equilibrium effects of this subsidy on the market for public education.

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The partial equilibrium effect of a subs...

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Frozen dessert companies produce ice cream and yogurt. Because of a large increase in obesity and a growing problem of type II diabetes among children, the government bans the sale and consumption of ice cream to anyone under 13 years of age. Analyze the general equilibrium effects by focusing on the supply-side linkages between ice cream and yogurt.

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The ban on ice cream sales to young chil...

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(Figure: Pancakes and Cereal I) Which of the following statements is (are) TRUE? (Figure: Pancakes and Cereal I) Which of the following statements is (are) TRUE? I. Points G, H, I, and J lie on the production contract curve. II) Points H and J represent an inefficient input allocation. III) At point G, allocating more labor and capital to the cereal industry will increase the output of cereal and pancakes. A) II B) I and III C) I D) II and III I. Points G, H, I, and J lie on the production contract curve. II) Points H and J represent an inefficient input allocation. III) At point G, allocating more labor and capital to the cereal industry will increase the output of cereal and pancakes.


A) II
B) I and III
C) I
D) II and III

E) B) and D)
F) None of the above

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Ying and Fei's marginal rate of substitution of purses for shoes is 2.5. Assuming the allocation of purses and shoes is Pareto efficient, the price ratio of purses to shoes is ____.


A) 2.5
B) 4
C) 2
D) 5

E) A) and C)
F) None of the above

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(Figure: Cereal and Pancakes III) Which of the following statements is (are) TRUE? (Figure: Cereal and Pancakes III) Which of the following statements is (are) TRUE? I. Pareto efficiency occurs when Elaina consumes 4 pancakes and 3 bowls of cereal and Jose consumes 4 pancakes and 7 bowls of cereal. II) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 3 bowls of cereal. III) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 7 bowls of cereal. A) I B) I and II C) II D) I, II, and III I. Pareto efficiency occurs when Elaina consumes 4 pancakes and 3 bowls of cereal and Jose consumes 4 pancakes and 7 bowls of cereal. II) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 3 bowls of cereal. III) Pareto efficiency occurs when Elaina consumes 3 pancakes and 3 bowls of cereal and Jose consumes 5 pancakes and 7 bowls of cereal.


A) I
B) I and II
C) II
D) I, II, and III

E) A) and D)
F) A) and C)

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May and Noon both like My Little Pony toys and Matchbox cars. Explain whether point A is or is not a Pareto efficient outcome. If it is not a Pareto efficient outcome, what combination of products may be a Pareto efficient allocation and why? May and Noon both like My Little Pony toys and Matchbox cars. Explain whether point A is or is not a Pareto efficient outcome. If it is not a Pareto efficient outcome, what combination of products may be a Pareto efficient allocation and why?

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Point A is not a Pareto-efficient alloca...

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On the basis of the Carmageddon study, which of the following statements is (are) TRUE about adding another traffic lane to a highway? I. Partial equilibrium analysis predicts that traffic flow will increase, since drivers will have more usable road space. II. General equilibrium analysis predicts that traffic flow will remain unchanged, as more businesses and people move to the area. III. Partial and general equilibrium analysis reach the same conclusion-expanding roadways reduces traffic congestion.


A) I
B) II
C) III
D) I and II

E) None of the above
F) B) and D)

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An economy has a total of 20 units of labor and 10 units of capital to produce food or clothing. a. Draw the production Edgeworth box. b. Using isoquants, illustrate a Pareto-efficient allocation of labor and capital between the food and clothing sectors. c. Using isoquants, illustrate a Pareto-inefficient allocation of labor and capital between the food and clothing sectors.

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The market for soybeans is characterized by The market for soybeans is characterized by = 16 - P<sub>s</sub> + P<sub>c</sub> and = P<sub>s</sub>, where Q<sub>s</sub> is the quantity of soybeans in millions of bushels, P<sub>s</sub> is the price per bushel of soybeans, and P<sub>c</sub> is the price per bushel of corn. The market for corn is characterized by = 40 - P<sub>c</sub> + P<sub>s</sub> and = P<sub>c</sub>, where Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from: A) 32 million to 24 million bushels. B) 32 million to 20 million bushels. C) 20 million to 11 million bushels. D) 24 million to 14 million bushels. = 16 - Ps + Pc and The market for soybeans is characterized by = 16 - P<sub>s</sub> + P<sub>c</sub> and = P<sub>s</sub>, where Q<sub>s</sub> is the quantity of soybeans in millions of bushels, P<sub>s</sub> is the price per bushel of soybeans, and P<sub>c</sub> is the price per bushel of corn. The market for corn is characterized by = 40 - P<sub>c</sub> + P<sub>s</sub> and = P<sub>c</sub>, where Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from: A) 32 million to 24 million bushels. B) 32 million to 20 million bushels. C) 20 million to 11 million bushels. D) 24 million to 14 million bushels. = Ps, where Qs is the quantity of soybeans in millions of bushels, Ps is the price per bushel of soybeans, and Pc is the price per bushel of corn. The market for corn is characterized by The market for soybeans is characterized by = 16 - P<sub>s</sub> + P<sub>c</sub> and = P<sub>s</sub>, where Q<sub>s</sub> is the quantity of soybeans in millions of bushels, P<sub>s</sub> is the price per bushel of soybeans, and P<sub>c</sub> is the price per bushel of corn. The market for corn is characterized by = 40 - P<sub>c</sub> + P<sub>s</sub> and = P<sub>c</sub>, where Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from: A) 32 million to 24 million bushels. B) 32 million to 20 million bushels. C) 20 million to 11 million bushels. D) 24 million to 14 million bushels. = 40 - Pc + Ps and The market for soybeans is characterized by = 16 - P<sub>s</sub> + P<sub>c</sub> and = P<sub>s</sub>, where Q<sub>s</sub> is the quantity of soybeans in millions of bushels, P<sub>s</sub> is the price per bushel of soybeans, and P<sub>c</sub> is the price per bushel of corn. The market for corn is characterized by = 40 - P<sub>c</sub> + P<sub>s</sub> and = P<sub>c</sub>, where Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from: A) 32 million to 24 million bushels. B) 32 million to 20 million bushels. C) 20 million to 11 million bushels. D) 24 million to 14 million bushels. = Pc, where The market for soybeans is characterized by = 16 - P<sub>s</sub> + P<sub>c</sub> and = P<sub>s</sub>, where Q<sub>s</sub> is the quantity of soybeans in millions of bushels, P<sub>s</sub> is the price per bushel of soybeans, and P<sub>c</sub> is the price per bushel of corn. The market for corn is characterized by = 40 - P<sub>c</sub> + P<sub>s</sub> and = P<sub>c</sub>, where Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from: A) 32 million to 24 million bushels. B) 32 million to 20 million bushels. C) 20 million to 11 million bushels. D) 24 million to 14 million bushels. Is the quantity of corn in millions of bushels. Suppose the government eliminates the ethanol mandate, decreasing the demand for corn by 12 million bushels at any given price. The general equilibrium quantity of corn decreases from:


A) 32 million to 24 million bushels.
B) 32 million to 20 million bushels.
C) 20 million to 11 million bushels.
D) 24 million to 14 million bushels.

E) B) and C)
F) A) and B)

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The market for soybeans is characterized by The market for soybeans is characterized by = 21 - P<sub>S</sub> and = 2P<sub>S</sub> - P<sub>C</sub>, where Q<sub>S</sub> is the quantity of soybeans in millions of bushels, P<sub>S</sub> is the price per bushel of soybeans, and P<sub>C</sub> is the price per bushel of corn. The market for corn is characterized by = 21 - P<sub>C</sub> and = 2P<sub>C</sub> <sub>-</sub> P<sub>S</sub>, where Q<sub>C</sub> is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans? = 21 - PS and The market for soybeans is characterized by = 21 - P<sub>S</sub> and = 2P<sub>S</sub> - P<sub>C</sub>, where Q<sub>S</sub> is the quantity of soybeans in millions of bushels, P<sub>S</sub> is the price per bushel of soybeans, and P<sub>C</sub> is the price per bushel of corn. The market for corn is characterized by = 21 - P<sub>C</sub> and = 2P<sub>C</sub> <sub>-</sub> P<sub>S</sub>, where Q<sub>C</sub> is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans? = 2PS - PC, where QS is the quantity of soybeans in millions of bushels, PS is the price per bushel of soybeans, and PC is the price per bushel of corn. The market for corn is characterized by The market for soybeans is characterized by = 21 - P<sub>S</sub> and = 2P<sub>S</sub> - P<sub>C</sub>, where Q<sub>S</sub> is the quantity of soybeans in millions of bushels, P<sub>S</sub> is the price per bushel of soybeans, and P<sub>C</sub> is the price per bushel of corn. The market for corn is characterized by = 21 - P<sub>C</sub> and = 2P<sub>C</sub> <sub>-</sub> P<sub>S</sub>, where Q<sub>C</sub> is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans? = 21 - PC and The market for soybeans is characterized by = 21 - P<sub>S</sub> and = 2P<sub>S</sub> - P<sub>C</sub>, where Q<sub>S</sub> is the quantity of soybeans in millions of bushels, P<sub>S</sub> is the price per bushel of soybeans, and P<sub>C</sub> is the price per bushel of corn. The market for corn is characterized by = 21 - P<sub>C</sub> and = 2P<sub>C</sub> <sub>-</sub> P<sub>S</sub>, where Q<sub>C</sub> is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans? = 2PC - PS, where QC is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans?

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blured image = blured image 21 - PS = 2PS - PC
PS = 7 + 1/3 PC blured image = blured image 21...

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Almonds and walnuts are substitutes. Suppose the world demand for walnuts increases. General equilibrium analysis predicts a ____ effect on the equilibrium price and a ____ effect on the quantity of almonds than partial equilibrium analysis.


A) larger; larger
B) larger; smaller
C) smaller; larger
D) smaller; smaller

E) All of the above
F) None of the above

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