1. True/False: Partial equilibrium analysis only concerns supply or demand alone, whereas general equilibrium analysis concerns supply and demand simultaneously. 2. True/False: In general equilibrium analysis, an allocation is said to be as a reasonable allocation if each consumer consumes the same bundle its value is no more than the value of the consumer's income. 3. True/False: In general equilibrium analysis, an allocation is said to be as a reasonable allocation if each consumer consumes the same bundle its value is no more than the value of the consumer's income.
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- Which is the correct answer? Coffee and doughnuts are complements in consumption. Suppose the economy expands so that consumer income increases, and coffee is a normal good. What impact does this change in the coffee market have on the doughnut market under a general equilibrium analysis? A. Doughnut demand shifts leftward and doughnut price and quantity decline. B. Doughnut demand shifts leftward, doughnut price declines, and doughnut quantity increases. C. Doughnut demand shifts rightward, doughnut price increases, and doughnut quantity declines. D. Doughnut demand shifts rightward and doughnut price and quantity increase.5. Carol and Bob both consume the same goods in an economy of pure exchange. Carol is initially endowed with 9 units of good 1 and 6 units of good 2. Bob is initially endowed with 18 units of good 1 and 3 units of good 2. They both have the utility function U(x₁, x₂) = 1/3 x1³x2³. If we set good 1 as the numeraire (so that p₁ = $1), what will the equilibrium price of good 2 be?10. Consumer A and B have each been given an allocation of 2 goods x and y (assume each has positive amounts of both goods). At this allocation, consumer A has an MRS of 2, while consumer B has an MRS of 1/2. Could this allocation be Pareto efficient? Explain why or why not.
- Suppose there are two consumers, A and B. There are two goods, X and Y. There is a TOTAL of 8 units of X and a TOTAL of 8 units of Y. The consumers' utility functions are given by: UA(X,Y) = 2X + Y UB(X,Y) = X*Y2 Which of the following allocations is Pareto Efficient? None of the other answers are Pareto Efficient. Consumer A gets 3 units of X and 8 units of Y, and Consumer B gets 5 units of X and O units of Y. Consumer A gets 4 units of X and 4 units of Y, and Consumer B gets 4 units of X and 4 units of Y. Consumer A gets 1 units of X and 4 units of Y, and Consumer B gets 7 units of X and 4 units of Y. Consumer A gets 8 units of X and 8 units of Y, and Consumer B gets 0 units of X and O units of Y.If a good is free, when will a consumer stop wanting to buy the good? Once the total utility equals zero At the quantity where marginal utility is at its maximum Once the marginal utility equals zero When marginal utility is negative Once the marginal utility equals total utility What is used to measure a consumer's entire satisfaction or happiness of a choice? Total utility Marginal cost Marginal utility Total Revenue Total costs Which of the following best defines the term utility as it is used by economists? when a market allocates resources in a way that maximizes consumer and producer surplusWhat is an equilibrium condition? How do we that we have an equilibrium condition?
- Bert has an initial endowment consisting of 10 units of food and 1o units of clothing. ernie’s initial endowment consists of 10 units of food and 20 units of clothing. Bert regards food and clothing as perfect 1-for-1 substitutes. Ernie regards them as perfect complements, always wanting to consume 3 units of clothing for every 2 units of food. 1. Describe the set of allocations that are Pareto preferred?2. What price ratio will be required to sustain an allocation on the contract curve?3. Anita (A), Ben (B) and Carlos (C) are housemates who have moved to a new house and must decide how to allocate rooms X, Y and Z. An 'allocation' is where each housemate is assigned to exactly one room. For example, Anita → Room Z, Ben → Room X and Carlos → Room Y is allocation (Z, X, Y). Utilities for each room are given below: Room X Utility for A 7 Utility for B 9 Utility for C 2 Room Y 4 3 7 Room Z 2 1 4In economics, we have learned that related goods’ price does matter. Given the budget constraint and everything else remains the same, an individual consumer switches to relatively cheaper goods (also known as substitution effect). Often when you visit a chemist shop with your doctor’s prescription, your pharmacist may ask whether you are interested in buying a relatively cheaper drug (which is biologically equivalent to your prescribed drug) if it is available. what seems to be a problem that may arise when one switches to a cheaper drug.
- Assume you are spending your full budget and purchasing such amounts of X and Y that the marginal utility from the last units consumed is 40 and 20 utils respectively. Assume (a) the prices of X and Y are $8 and $4 respectively; (b) it takes 3 hours to consume a unit of X and 1 hour to consume a unit of Y; and (c) your time is worth $2 per hour. In equilibrium, if you included the opportunity cost of time then, you should substitute X for Y until the marginal utility per hour is the same for both products. should consume X and Y in the equal amounts. should consume less of Y and more of X. should consume less of X and more of Y.Carol and Bob both consume the same goods in an economy of pure exchange. Carol is initially endowed with 9 units of good 1 and 6 units of good 2. Bob is initially endowed with 18 units of good 1 and 3 units of good 2. They both have the utility function U(x₁, x₂) = = $1), what will the equilibrium price of x1/³x/3. If we set good 1 as the numeraire (so that p₁ good 2 be?True/False (1) If the assumptions of the first theorem of welfare economics apply and if the economy is in a competitive equilibrium, then any reallocation that benefits someone must harm someone else.< (2) The second welfare theorem of economics states that if preferences are convex, then any Pareto optimal allocation could be achieved as a competitive equilibrium after some reallocation of initial endowments.<