Question 1

Which of the following is NOT a basic assumption about consumer preferences in microeconomics?

Accepted Answer

Satiation: There is a point where more of a good is no longer preferred.

Question 2

Suppose James and Karen have different marginal rates of substitution (MRS) for food and clothing. What does this imply about the possibility of trade?

Accepted Answer

Pareto-improving trades are possible because their willingness to exchange goods differs.

Question 3

The marginal rate of substitution (MRS) between two goods is best described as:

Accepted Answer

The rate at which a consumer is willing to give up one good for another while remaining on the same indifference curve.

Question 4

In the Edgeworth Box, what does a point inside the box (but not on the edge) represent?

Accepted Answer

A possible allocation of goods between two agents.

Question 5

Which condition must be met for an allocation to be Pareto efficient in exchange?

Accepted Answer

The marginal rate of substitution between any pair of goods is the same for all consumers.

Question 6

If the indifference curves of two agents are tangent at a point in the Edgeworth Box, what does this indicate?

Accepted Answer

The allocation is Pareto efficient.

Question 7

What does the contract curve in the Edgeworth Box represent?

Accepted Answer

All Pareto-efficient allocations where the indifference curves are tangent.

Question 8

Suppose a social planner wants to maximize the utility of the least well-off individual. Which social welfare function is the planner using?

Accepted Answer

Rawlsian (maximin)

Question 9

If a market outcome is efficient but results in one agent being much richer than another, which concept is most relevant for evaluating whether this outcome is desirable?

Accepted Answer

Equity

Question 10

Which of the following best describes the utility possibility frontier?

Accepted Answer

The set of all efficient allocations in terms of utility for two agents.

Question 11

If a social planner is constrained to only use lump-sum taxes for redistribution, what trade-off might arise?

Accepted Answer

A trade-off between equity and efficiency.

Question 12

Which of the following is a plausible but not always necessary assumption about preferences?

Accepted Answer

Convexity

Question 13

Suppose Karen and James start with endowments (16,1) and (2,5) of clothing and food, respectively. Which of the following is true?

Accepted Answer

A Pareto-improving trade is possible if their MRS differ.

Question 14

Which of the following statements about indifference curves is correct?

Accepted Answer

Any two baskets on the same indifference curve are equally desirable to the consumer.

Question 15

If the marginal rate of substitution (MRS) falls as a consumer moves along an indifference curve, what does this imply about preferences?

Accepted Answer

Preferences are convex.

Question 16

Which of the following is an example of a utilitarian social welfare function?

Accepted Answer

Maximize the sum of individual utilities.

Question 17

In a competitive market, which information do agents need to know to reach an efficient allocation?

Accepted Answer

Only their own preferences.

Question 18

Which of the following best describes a Pareto improvement?

Accepted Answer

An allocation where at least one person is better off and no one is worse off.

Question 19

If a central planner wants to reach an efficient allocation, what must they know?

Accepted Answer

Both agents' preferences.

Question 20

Which of the following is NOT a possible outcome when a planner is constrained in their redistribution tools?

Accepted Answer

A Pareto improvement for all agents.

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