TEST BANK FOR CHAPTER 10 : GENERAL EQUILIBRIUM AND
TEST BANK FOR CHAPTER 10: General Equilibrium and Welfare
WELFARE
MULTIPLE CHOICE
1. Consider a two-good production economy in which both goods are produced with fixed
proportions production functions. Then, some efficient allocations will exhibit unemployment
of some factor providing
a. the firms use the inputs in different proportions.
b. the firms exhibit diminishing returns to scale.
c. the firms exhibit increasing returns to scale.
d. production can never be efficient if there are unemployed inputs.
ANS: a
2. Suppose two goods (X and Y ) are being produced efficiently and that the production of X is
always more labor intensive than the production of Y. Production depends only on two factors
(capital and labor); these may be smoothly substituted for each other. The total quantities of
these inputs are fixed. An increase in the production of X and a decrease in the production of
Y will
a. increase the capital-labor ratio in each firm.
b. decrease the capital-labor ratio in each firm.
c. leave the capital-labor ratio for each firm unchanged.
d. increase the capital-labor ratio in Y production and decrease the capital -labor ratio in X
production.
ANS: a
3. An efficient allocation of productive inputs requires that
a. each output has the same rate of technical substitution among inputs used.
b. each output has the same marginal rate of substitution for consumers.
c. each pair of outputs has the same rate of product transformation.
d. each individual has the same marginal rate of substitution between outputs.
ANS: a
4. The slope of the production possibility frontier shows
a. the marginal rate of substitution between the two goods.
b. the relative marginal costs of the two goods.
c. the efficient combination of outputs possible using fixed amounts of input.
d. the relative marginal productivities of the two goods.
ANS: b
5. The rate of product transformation refers to
a. how a consumer can trade one good for another while still maximizing his or her utility.
b. how a firm can substitute one input for another and still maintain the same production
level.
c. how production of one good can be substituted for another while still using a fixed supply
of inputs efficiently.
d. how quickly a firm can produce a final good while starting with only natural resources.
ANS: c
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, 2 Chapter 10: General Equilibrium and Welfare
6. In an economy consisting of only two goods, corn and cloth, the amount of extra cloth that
can be produced efficiently if corn output is reduced by one unit is equal to
a. the rate of technical substitution for corn divided by the rate of technical substitution for
cloth.
b. the rate of technical substitution for cloth divided by the rate of technical substitution for
corn.
c. the marginal cost of producing cloth divided by the marginal cost of producing corn.
d. the marginal cost of producing corn divided by the marginal cost of producing cloth.
ANS: d
7. Each of the following factors might interfere with the efficiency of perfect competition
except:
a. increasing returns to scale.
b. imperfect price information.
c. externalities.
d. diminishing returns to scale.
ANS: d
8. The reason externalities distort the allocation of resources is that
a. too few goods are usually produced.
b. firms often go out of business because of the externality.
c. a firm’s private costs do not reflect the social cost of production.
d. regulating externalities uses scarce resources.
ANS: c
9. Under a perfectly competitive price system
a. an equitable allocation of the available resources will always result.
b. there is no opportunity for individuals to trade amongst themselves.
c. there is no reason to expect that voluntary trading will result in an equitable allocation of
the available resources.
d. None of the above will result.
ANS: c
10. Consider three ways of allocating two goods in a two-person exchange economy.
I. Both individuals take prices as given and equilibrium prices are established by
an impartial auctioneer.
II. One individual can act as a perfect price discriminator and force the other
individual to pay a different price for each unit of a good that is traded.
III. One individual is a monopolist and can charge the other individual a single,
utility-maximizing price.
Which of these situations is efficient?
a. None of them.
b. Only I.
c. I and II, but not III.
d. I and III, but not II.
ANS: c
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TEST BANK FOR CHAPTER 10: General Equilibrium and Welfare
WELFARE
MULTIPLE CHOICE
1. Consider a two-good production economy in which both goods are produced with fixed
proportions production functions. Then, some efficient allocations will exhibit unemployment
of some factor providing
a. the firms use the inputs in different proportions.
b. the firms exhibit diminishing returns to scale.
c. the firms exhibit increasing returns to scale.
d. production can never be efficient if there are unemployed inputs.
ANS: a
2. Suppose two goods (X and Y ) are being produced efficiently and that the production of X is
always more labor intensive than the production of Y. Production depends only on two factors
(capital and labor); these may be smoothly substituted for each other. The total quantities of
these inputs are fixed. An increase in the production of X and a decrease in the production of
Y will
a. increase the capital-labor ratio in each firm.
b. decrease the capital-labor ratio in each firm.
c. leave the capital-labor ratio for each firm unchanged.
d. increase the capital-labor ratio in Y production and decrease the capital -labor ratio in X
production.
ANS: a
3. An efficient allocation of productive inputs requires that
a. each output has the same rate of technical substitution among inputs used.
b. each output has the same marginal rate of substitution for consumers.
c. each pair of outputs has the same rate of product transformation.
d. each individual has the same marginal rate of substitution between outputs.
ANS: a
4. The slope of the production possibility frontier shows
a. the marginal rate of substitution between the two goods.
b. the relative marginal costs of the two goods.
c. the efficient combination of outputs possible using fixed amounts of input.
d. the relative marginal productivities of the two goods.
ANS: b
5. The rate of product transformation refers to
a. how a consumer can trade one good for another while still maximizing his or her utility.
b. how a firm can substitute one input for another and still maintain the same production
level.
c. how production of one good can be substituted for another while still using a fixed supply
of inputs efficiently.
d. how quickly a firm can produce a final good while starting with only natural resources.
ANS: c
This study source was downloaded by 100000841341657 from CourseHero.com on 03-23-2022 09:35:25 GMT -05:00
1
https://www.coursehero.com/file/12388259/TEST-BANK-FOR-CHAPTER-10/
, 2 Chapter 10: General Equilibrium and Welfare
6. In an economy consisting of only two goods, corn and cloth, the amount of extra cloth that
can be produced efficiently if corn output is reduced by one unit is equal to
a. the rate of technical substitution for corn divided by the rate of technical substitution for
cloth.
b. the rate of technical substitution for cloth divided by the rate of technical substitution for
corn.
c. the marginal cost of producing cloth divided by the marginal cost of producing corn.
d. the marginal cost of producing corn divided by the marginal cost of producing cloth.
ANS: d
7. Each of the following factors might interfere with the efficiency of perfect competition
except:
a. increasing returns to scale.
b. imperfect price information.
c. externalities.
d. diminishing returns to scale.
ANS: d
8. The reason externalities distort the allocation of resources is that
a. too few goods are usually produced.
b. firms often go out of business because of the externality.
c. a firm’s private costs do not reflect the social cost of production.
d. regulating externalities uses scarce resources.
ANS: c
9. Under a perfectly competitive price system
a. an equitable allocation of the available resources will always result.
b. there is no opportunity for individuals to trade amongst themselves.
c. there is no reason to expect that voluntary trading will result in an equitable allocation of
the available resources.
d. None of the above will result.
ANS: c
10. Consider three ways of allocating two goods in a two-person exchange economy.
I. Both individuals take prices as given and equilibrium prices are established by
an impartial auctioneer.
II. One individual can act as a perfect price discriminator and force the other
individual to pay a different price for each unit of a good that is traded.
III. One individual is a monopolist and can charge the other individual a single,
utility-maximizing price.
Which of these situations is efficient?
a. None of them.
b. Only I.
c. I and II, but not III.
d. I and III, but not II.
ANS: c
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