d c Firm X has 9 units of K and 1 units of L and Firm Y has 5 units of K and 5

D c firm x has 9 units of k and 1 units of l and firm

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d. c) Firm X has 9 units of K and 1 units of L , and Firm Y has 5 units of K and 5 units of L . e. d) Firm X has 5 units of K and 5 units of L , and Firm Y has 1 unit of K and 3 units of L . Ans: B Difficulty: Medium Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation. a. 40. The Production Possibilities Frontier represents b. a) All consumption good allocations in an Edgeworth box that are exchange efficient. c. b) all input allocations in an Edgeworth box for inputs that are input efficient.
d. c) All possible combinations of consumption goods that can be produced in an economy given the economy’s available supply of inputs. e. d) the different combinations of capital and labor inputs that will produce a given level of output for a particular good. Ans: C Difficulty: Easy Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation. a. 41. The slope of the Production Possibilities Frontier is b. a) The marginal rate of technical substitution. c. b) The marginal revenue product. d. c) The marginal rate of substitution. e. d) The marginal rate of transformation. Ans: D Difficulty: Easy Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation. a. 42. The marginal rate of transformation where goods X and Y are produced by an economy using capital and labor as inputs equals b. a) X/Y. c. b) w/r, where w is the wage and r is the rental rate of capital. d. c) MP L /MP K , where L stands for labor and K stands for capital. e. d) MC X /MC Y Ans: D Difficulty: Easy Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation. a. 43. In a competitive general equilibrium, which of the following relations will not be true? b. a) MRS X,Y = MRT X,Y . c. b) MRT X,Y = MC X /MC Y . d. c) MRS X,Y = P X /P Y . e. d) MRT X,Y = w/r. Ans: D Difficulty: Easy Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation. a. 44. Exchange efficiency, input efficiency, and substitution efficiency are satisfied when ______________________. This result is known as ______________. b. a) free trade occurs; Walras Law. c. b) all markets are at a general competitive equilibrium; Walras Law. d. c) all markets are at a general competitive equilibrium; the First Fundamental Theorem of Welfare economics. e. d) resources are scarce; the First Fundamental Theorem of Welfare economics. Ans: C Difficulty: Easy Heading: The Efficiency of Competitive Markets LO 5 Apply the general equilibrium theory to explore the efficiency of resource allocation.
a. 45. The significance of the First Fundamental Theorem of Welfare Economics is that: b. a) even if the economy is in competitive general equilibrium, significant intervention will be required to bring about economic efficiency.

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