Question 1

Which of the following best describes general equilibrium in an economy?

Accepted Answer

A condition where all markets in an economy are in simultaneous equilibrium.

Question 2

Suppose the government introduces a subsidy for corn-based ethanol, increasing demand for corn. Using general equilibrium analysis, what is the likely effect on the market for other foods?

Accepted Answer

The price of other foods will likely rise as resources shift toward corn production, reducing supply of other foods.

Question 3

Which of the following is a necessary condition for allocative efficiency in a perfectly competitive market?

Accepted Answer

All firms equate price and marginal cost: $$P = MC$$

Question 4

Which of the following is NOT a source of market failure?

Accepted Answer

Perfect information in all markets

Question 5

A market is said to be Pareto efficient if:

Accepted Answer

No change is possible that will make some members of society better off without making others worse off.

Question 6

In the context of perfect competition, which of the following statements is true regarding the distribution of outputs among households?

Accepted Answer

As long as everyone shops freely in the same markets and pays the same prices, no redistribution of final outputs among people will make them better off.

Question 7

Which of the following best illustrates an externality?

Accepted Answer

A factory emits pollution that affects the health of nearby residents.

Question 8

If a market is characterized by imperfect information, what is the likely outcome?

Accepted Answer

Resources may be misallocated, leading to market failure.

Question 9

Which of the following is a characteristic of public goods?

Accepted Answer

They bestow collective benefits and generally no one can be excluded from enjoying them.

Question 10

In a perfectly competitive market, what role do prices play in the allocation of resources among firms?

Accepted Answer

Prices act as signals that guide firms to use resources efficiently without explicit coordination.

Question 11

Suppose the demand for product X increases, raising its price and creating profits, while demand for product Y falls, lowering its price and causing losses. According to general equilibrium theory, what is the expected long-run adjustment?

Accepted Answer

Firms will enter sector X and exit sector Y, shifting supply and eliminating profits and losses in both sectors.

Question 12

Which of the following equations represents the key efficiency condition in perfect competition?

Accepted Answer

$$P = MC$$

Question 13

Which of the following is an example of imperfect market structure leading to market failure?

Accepted Answer

A single firm dominates the market and sets prices above marginal cost.

Question 14

If a market is Pareto efficient, which of the following statements must be true?

Accepted Answer

Any change that makes someone better off will make someone else worse off.

Question 15

Which of the following is a real-world example of a public good?

Accepted Answer

National defense

Question 16

Which of the following statements about the efficiency of perfect competition is correct?

Accepted Answer

Perfect competition leads to an efficient allocation of resources, an efficient mix of output, and an efficient distribution of output.

Question 17

Which of the following is most likely to cause a market to fail to achieve efficiency?

Accepted Answer

The presence of external costs or benefits not reflected in market prices.

Question 18

If a market is characterized by imperfect information, which of the following is a likely consequence?

Accepted Answer

Consumers may make suboptimal choices, leading to inefficient outcomes.

Question 19

Which of the following best describes the role of the 'invisible hand' in a perfectly competitive market?

Accepted Answer

It allows for efficiency without explicit coordination or planning by guiding resources through price signals.

Question 20

Which of the following is a correct statement about the relationship between efficiency and equity in evaluating economic systems?

Accepted Answer

Efficiency concerns producing what people want at least possible cost, while equity concerns the fairness of the distribution of resources.

General Equilibrium and the Efficiency of Perfect Competition

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