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.