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GE practice
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1.
An economy has two people, Charlie and Doris. There are two goods, apples and bananas. Charlie has an
initial endowment of 6 apples and 4 bananas. Doris has an initial endowment of 12 apples and 2 bananas.
Charlie’s utility function is
U
(
A
C
,
B
C
) =
A
C
B
C
, where
A
C
is his apple consumption and
B
C
is his banana
consumption. Doris’s utility function is
U
(
A
D
,
B
D
) =
A
D
B
D
, where
A
D
and
B
D
are her apple and banana
consumptions. At every Pareto optimal allocation,
a.
Charlie consumes the same number of apples as Doris.
b.
Charlie consumes 18 apples for every 6 bananas that he consumes.
c.
Doris consumes equal numbers of apples and bananas.
d.
Charlie consumes more bananas per apple than Doris does.
e.
Doris consumes 12 apples for every 2 bananas that she consumes.
____
2.
Ken’s utility function is
U
(
Q
K
,
W
K
) =
Q
K
W
K
and Barbie’s utility function is
U
(
Q
B
,
W
B
) =
Q
B
W
B
. If Ken’s initial
endowment were 4 units of quiche and 6 units of wine and Barbie’s endowment were 8 units of quiche and 6
units of wine, then at any Pareto optimal allocation where both persons consume some of each good,
a.
Ken would consume 4 units of quiche for every 6 units of wine.
b.
Barbie would consume twice as much quiche as Ken.
c.
Ken would consume 12 units of quiche for every 12 units of wine that he consumes.
d.
Barbie would consume 8 units of quiche for every 6 units of wine that she consumes.
e.
None of the above.
____
3.
Suppose that Morris has the utility function
U
(
b
,
w
) = 4
b
+ 12
w
and Philip has the utility function
U
(
b
,
w
) =
bw
. If we draw an Edgeworth box with books on the horizontal axis and wine on the vertical axis and if we
measure Morris’s consumptions from the lower left corner of the box, then the contract curve contains
a.
a straight line running from the upper right corner of the box to the lower left.
b.
a curve that gets steeper as you move from left to right.
c.
a straight line with slope
passing through the lower left corner of the box.
d.
a straight line with slope
passing through the upper right corner of the box.
e.
a curve that gets flatter as you move from left to right.
____
4.
Astrid’s utility function is
U
(
H
A
,
C
A
) =
H
A
C
A
. Birger’s utility function is min{
H
B
,
C
B
}. If Astrid’s initial
endowment is no cheese and 13 units of herring and if Birger’s initial endowments are 12 units of cheese and
no herring, then where
p
is a competitive equilibrium price of herring and cheese is the numeraire, demand
equals supply in the herring market. This implies that
a.
+ 6.50 = 13.
b.
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 Spring '09
 AVRINRAD

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