Question 1

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

Accepted Answer

The condition that exists when all markets in an economy are in simultaneous equilibrium.

Question 2

Suppose the demand for product X increases while the demand for product Y decreases. According to general equilibrium analysis, what is the likely outcome in the long run?

Accepted Answer

Firms will exit sector Y and enter sector X, eliminating profits in X and losses in Y.

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

What is Pareto efficiency?

Accepted Answer

A condition in which no change is possible that will make some members of society better off without making others worse off.

Question 5

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

Accepted Answer

Perfect information

Question 6

A classic example of a public good is:

Accepted Answer

National defense

Question 7

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

Accepted Answer

Consumers and producers may make suboptimal decisions, leading to market failure.

Question 8

Which of the following best explains why perfect competition leads to efficient resource allocation among firms?

Accepted Answer

All firms face identical input prices and maximize profits.

Question 9

The war in Ukraine caused oil prices to surge. Using general equilibrium analysis, what is a likely effect on the U.S. economy?

Accepted Answer

Higher oil prices increase production costs, affecting prices and output in many other markets.

Question 10

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

Accepted Answer

Perfect competition ensures that the things people want are produced efficiently.

Question 11

Which equation represents the key efficiency condition in perfect competition?

Accepted Answer

$$P = MC$$

Question 12

Which of the following is an example of an externality?

Accepted Answer

A factory pollutes a river, affecting downstream residents.

Question 13

Why might government intervention be justified in the presence of market failure?

Accepted Answer

To correct misallocation of resources and improve efficiency.

Question 14

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

Firms are price-takers in both input and output markets.

Question 15

If all households shop freely in the same markets and pay the same prices, what is the implication for the distribution of outputs among households?

Accepted Answer

No redistribution will make people better off, as each household chooses its preferred combination.

Question 16

Which of the following is NOT an assumption of the perfectly competitive model?

Accepted Answer

Firms can influence market prices.

Question 17

Market failure occurs when:

Accepted Answer

Resources are misallocated, resulting in waste or lost surplus.

Question 18

Which of the following best describes partial equilibrium analysis?

Accepted Answer

Examining equilibrium conditions in individual markets and for households and firms separately.

Question 19

Which of the following is a normative criterion used to judge the performance of an economic system?

Accepted Answer

Equity (fairness)

Question 20

In a perfectly competitive market, what ensures that the right things are produced?

Accepted Answer

Firms equate price and marginal cost: $$P = MC$$

General Equilibrium and the Efficiency of Perfect Competition

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