Suppose two coffee snobs who must have their coffee and cream in exact proportions (each cup is 10 coffee per 1 unit cream) are invited to a weekend long event (during which they can easily consume 8 cups of coffee). Suppose Snob A is given 8 units of cream and Snob B is given 80 units of coffee. The contract curve in the Edgeworth box would be
a right angle connecting the lower left corner with the upper right corner.
a curve (not a line) connecting the lower left corner with the upper right corner.
a line connecting the lower left corner with the upper right corner.
a right angle connecting the upper left corner with the lower right corner.
Markets can fail to achieve efficiency when
there are prices consumers do not think are fair.
there are wages workers do not think are fair.
trade puts people out of work.
there are buyers or sellers without adequate information about the quality of goods.
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
the firms use the inputs in different proportions.
the firms exhibit diminishing returns to scale.
the firms exhibit increasing returns to scale.
production can never be efficient if there are unemployed inputs.
An efficient allocation of productive inputs requires that
each output has the same rate of technical substitution among inputs used.
each output has the same marginal rate of substitution for consumers.
each pair of outputs has the same rate of product transformation.
each individual has the same marginal rate of substitution between outputs.
The slope of the production possibility frontier shows
the marginal rate of substitution between the two goods.
the relative marginal costs of the two goods.
the efficient combination of outputs possible using fixed amounts of input.
the relative marginal productivities of the two goods.
The rate of product transformation refers to
how a consumer can trade one good for another while still maximizing his or her utility.
how a firm can substitute one input for another and still maintain the same production level.
how production of one good can be substituted for another while still using a fixed supply of inputs efficiently.
how quickly a firm can produce a final good while starting with only natural resources.
Each of the following factors might interfere with the efficiency of perfect competition except
increasing returns to scale.
imperfect price information.
externalities.
diminishing returns to scale.
Under a perfectly competitive price system
an equitable allocation of the available resources will always result.
there is no opportunity for individuals to trade amongst themselves.
there is no reason to expect that voluntary trading will result in an equitable allocation of the available resources.
None of the above will result.
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?
None of them.
Only I.
I and II, but not III.
I and III, but not II.
All of them.
In free exchange among two individuals the position on the contract curve finally arrived at will, among other things, depend on: I. The bargaining strength of each individual. II. The initial endowments of the individuals. III. The individuals’ preferences. Which of these correctly completes the statement?