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Exam 15: General Equilibrium

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Question 41

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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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Question 42

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(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

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

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Question 43

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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.

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 ____.

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.

The market for soybeans is characterized by = 16 - P_s + P_c and = P_s, where Q_s is the quantity of soybeans in millions of bushels, P_s is the price per bushel of soybeans, and P_c is the price per bushel of corn. The market for corn is characterized by = 40 - P_c + P_s and = P_c, 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:

(Figure: Crumpets and Tea II) If the economy is at point B, the input mix is:

(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 = P². 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?

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.

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 ____.

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.

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:

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?

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?

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.

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?

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

The market for soybeans is characterized by = 21 - P_S and = 2P_S - P_C, where Q_S is the quantity of soybeans in millions of bushels, P_S is the price per bushel of soybeans, and P_C is the price per bushel of corn. The market for corn is characterized by = 21 - P_C and = 2P_{C -} P_S, where Q_C is the quantity of corn in millions of bushels. In general equilibrium, what are the equilibrium price and quantity of corn and soybeans?

(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.

(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?