### Microeconomics Practice Test - 14: General Equilibrium and Welfare Economics

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1. In an economy of two individuals (A and B) and two commodities (X and Y), general equilibrium of exchange is reached when

1. $$MR{T_{xy}} = MR{S_{xy}}$$for A and B

2. $$MR{S_{xy}} = {P_x}/{P_y}$$

3. $${(MR{S_{xy}})_A} = {(MR{S_x})_B}$$

4. all of the above

2. The locus of general equilibrium points of exchange in a two-individual, two-commodity economy is called

1. the consumption contract curve

2. the production contract curve

3. the social welfare function

4. the transformation curve

3. In an economy of two commodities (X and Y) and two factors (L and K), general equilibrium of production is reached when

1. $$MRT{S_{LK}} = {P_L}/{P_K}$$

2. $$MRT{S_{LK}} = MR{S_{xy}}$$

3. $$MR{T_{xy}} = MR{S_{xy}}$$

4. $${(MRT{S_{LK}})_x} = {(MRT{S_{LK}})_y}$$

4. The transformation curve is derived from

1. the consumption curve

2. the utility-possibility curve

3. the social welfare function

4. the production contract curve

5. The slope of the transformation curve is given by

1. $$MR{T_{xy}}$$

2. $$MR{S_{xy}}$$

3. $$MRT{S_{LK}}$$

4. all of the above

6. In an economy of two individuals (A and B) and two commodities (X and Y), general equilibrium of production and exchange occurs when

1. $$MR{T_{xy}} = {P_x}/{P_y}$$

2. $$MR{S_{xy}}{\rm{ for A and B}} = {P_x}/{P_y}$$

3. $${(MR{S_{xy}})_A} = {(MR{S_{xy}})_B}$$

4. $$MR{T_{xy}} = {(MR{S_{xy}})_A} = {(MR{S_{xy}})_B}$$

7. The distribution of two commodities between two individuals is said to be Pareto optimal if

1. one individual cannot be made better off without making the other worse off

2. the individuals are on their consumption contract curve

3. the individuals are on their utility-possibility curve

4. all of the above

8. In deriving the utility-possibility curve, we make interpersonal comparisons of utility

1. Always

2. never

3. sometimes

4. often

9. The locus of Pareto optimality in production and consumption is given by

1. the social welfare function

2. the utility-possibility curve

3. the transformation curve

4. the grand utility-possibility curve

10. An ethical or value judgment must be made in order to derive

1. the transformation curve

2. the consumption contract curve

3. the grand utility-possibility curve

4. the social welfare function

11. In a two-commodity (X and Y) and two-individual (A and B) economy, the maximum social welfare is reached at

1. any point on the grand utility-possibility curve

2. any point on the social welfare function

3. the point where the $$MR{T_{xy}} = MR{S_{xy}}$$ for A and B

4. the point of tangency of the grand utility-possibility curve with a social welfare function

12. Perfect competition leads to a point on the grand utility-possibility curve

1. Always

2. never

3. sometimes

4. we cannot say