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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.
ANSWER: a
POINTS: 1
5. 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.
ANSWER: d
POINTS: 1
6. 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.
ANSWER: d
POINTS: 1
10. 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?
a. Only III.
b. Only II.
c. I and III, but not II.
d. II and III, but not I.
e. I, II, and III.
ANSWER: e
POINTS: 1
14. Suppose the Economics Department has a graduation party for its students but as a final test they must show they have
learned something about trade. The men are given food when they walk in and the women are given drink. Suppose they
have identical preferences where food and drink provide utility U = FαDβ. The contract curve in the Edgeworth box using
a representative man and woman would be
a. a right angle connecting the lower left corner with the upper right corner.
b. a curve (not necessarily a line) connecting the lower left corner with the upper right corner.
c. a line connecting the lower left corner with the upper right corner.
d. a right angle connecting the upper left corner with the lower right corner.
ANSWER: b
POINTS: 1
15. Suppose the Economics Department has a graduation party for its students but as a final test they must show they have
learned something about trade. The men are given food when they walk in and the women are given drink. Suppose they
have identical preferences where food and drink provide utility U = FαDβ. The exchange would be such that
a. both would be guaranteed to be better off than when they entered.
b. both would be guaranteed to be at least as well off as when they entered.
c. the men would end up with more.
d. the women would end up with more.
ANSWER: b
POINTS: 1
16. Suppose the Economics Department has a graduation party for its students but as a final test they must show they have
learned something about trade. The men are given food when they walk in and the women are given drink. Suppose they
have very different preferences where food and drink provide utility. For men U = FαDβ. For women U=min(F,D) The
contract curve in the Edgeworth box using a representative man and woman would be
a. a right angle connecting the lower left corner with the upper right corner.
b. a curve (not necessarily a line) connecting the lower left corner with the upper right corner.
c. a line connecting the lower left corner with the upper right corner.
d. a right angle connecting the upper left corner with the lower right corner.
ANSWER: c
POINTS: 1
17. Suppose goods X and Y are produced along a production possibilities frontier 4X2 + Y2 = 500 and they are perfect
substitutes such that U = X + Y. The slope of the production possibilities frontier is . How much X should
be produced?
a. 0
b. 5
c. 10
d. 20
ANSWER: b
POINTS: 1
18. Suppose goods X and Y are produced along a production possibilities frontier 4X2 + Y2 = 500 and they are perfect
substitutes such that U = X + Y. The slope of the production possibilities frontier is . How much Y should
be produced?
a. 0
b. 5
c. 10
d. 20
ANSWER: d
POINTS: 1
19. Suppose goods X and Y are produced along a production possibilities frontier 4X2 + Y2 = 500 and they are perfect
substitutes such that U = X + Y. The slope of the production possibilities frontier is . What is this slope at
the utility-maximizing point?
a. 0
b. −1
c. −4
d. −5
ANSWER: b
POINTS: 1
20. Suppose goods X and Y are produced along a production possibilities frontier 4X2 + Y2 = 500 and they are perfect
substitutes such that U = X + Y. The slope of the production possibilities frontier is . How much Y should
be produced?
a. 0
b. 5
c. 10
d. 20
ANSWER: b
POINTS: 1
21. Suppose goods X and Y are produced along a production possibilities frontier 4X2 + Y2 = 500 and they are perfect
substitutes such that U = X + Y. The slope of the production possibilities frontier is . What is this slope at
the utility-maximizing point?
a. 0
b. −1
c. −4
d. −5
ANSWER: b
POINTS: 1
22. 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. a right angle connecting the lower left corner with the upper right corner.
b. a curve (not a line) connecting the lower left corner with the upper right corner.
c. a line connecting the lower left corner with the upper right corner.
d. a right angle connecting the upper left corner with the lower right corner.
ANSWER: c
POINTS: 1
23. 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 post trading result (one in which any trade that makes
both parties better off than their initial allocation) will guarantee each person
a. nothing
b. at least 1 cup of properly made coffee.
c. at least 2 cups of properly made coffee.
d. exactly 4 cups of properly made coffee.
ANSWER: b
POINTS: 1
24. Suppose country A has a production possibilities frontier such that and country B has a production
possibilities frontier such that and consumers in each country view x and y as perfect substitutes.
Country B will produce
a. only x (= ) and trade for y.
b. only y (= ) and trade for x.
c. both x (= 20) and y (= 5) and trade x to get y.
d. both x (= 20) and y (= 5) and trade y to get x.
ANSWER: c
POINTS: 1
25. Suppose a man and a woman are in love and care for the other’s happiness as well as their own consumption.
Suppose they have 100 units of consumption to distribute, they will maximize the joint happiness (UM + UW) where
a. CM = 100; CW = 0
b. CW = 100; CM = 100
c. CM = 67; CW = 33
d. CW = 50; CM = 50
ANSWER: d
POINTS: 1
26. Suppose a man and a woman are in love and care for the other’s happiness as well as their own consumption. Suppose
the man is more selfish than the woman
UM = CM2/3 UW1/3
UW = CW1/2 UM1/2
27. Suppose a man and a woman are in love and care for the other’s happiness as well as their own consumption. Suppose
the woman is more selfish than the woman
UM = CM1/2 UW1/2
UW = CW2/3 UM1/3
Intermediate Microeconomics and Its Application 12th Edition Nicholson Test Bank