19 Questions
What is the primary issue with the production of goods like pest control and national defense?
They are under-produced by the free market due to the free-rider problem
What is a characteristic of Pareto efficiency?
It ensures that no one can be made better off without making someone else worse off
What is a potential issue with attempts to improve distributional fairness?
They have met with mixed success and had many undesirable side-effects
What is represented by point A in the diagram?
The initial endowments of Smith and Jones
What is a characteristic of a Pareto efficient economy?
A few individuals are wealthy and wasteful, while others freeze and starve
What is true about Smith and Jones at point A?
Smith is poor and Jones is rich
What is a result of the free-rider problem?
Under-production of public goods
What is true about the distribution of benefits in the economy?
It may be regarded as unfair
What is an example of a public good?
National defense
In a general equilibrium, firms and consumers choosing the same px/py ratio leads to excess demand for both goods.
False
The ratio of marginal utilities (MUx/MUy) is always equal to the ratio of marginal costs (MCx/MCy) in a general equilibrium.
True
At point D in an Edgeworth Box, the marginal rate of substitution (MRS) and the marginal rate of transformation (RPT) are not equal.
False
If px/py existed, firms would choose one point, and consumers would choose another, resulting in excess demand for one good and excess supply of another.
True
MRS = RPT = px/py does not represent an equilibrium condition for a two-good, two-input economy.
False
General equilibrium analysis is not applicable to economies with many goods, as it only works for two-good, two-input economies.
False
In a general equilibrium, markets clear through changes in supply and demand, not through changes in prices.
False
General equilibrium models assume that producers and consumers have different px/py ratios, leading to two separate analyses.
False
A general equilibrium is established at a point where the marginal rate of substitution is not equal to the marginal rate of transformation.
False
The marginal rate of transformation (RPT) changes with each point in the production possibility frontier (PPF) due to the opportunity cost.
True
Test your knowledge on the concepts of general equilibrium and welfare in this quiz for ECON6031 Unit 3. Explore how markets are interconnected and understand how changes in one market can impact others, leading to a full circle effect on the economy.
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