Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 20 units of clothing but no food. Suppose each has the utility function U = F ? C. Derive the contract curve
What will be an ideal response?
Let F and C denote the farmer's final allotment of food and clothing. Setting MRS's equal yields F/C = (10 - F)/(20 - C) or F/C = 1/2. The contract curve is a ray from the origin with a slope of 1/2 (assuming food is on the vertical axis).
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If in some production range average cost is rising, the firm is experiencing
A. increasing returns to scale. B. decreasing returns to scale. C. constant returns to scale. D. increasing costs per unit of output.
Where the income line intersects the consumption curve, saving
a. equals consumption b. equals income c. is less than zero d. is equal to zero e. is greater than zero
If the price of chicken rises and the price of beef does not rise, consumers will respond by:
A. increasing purchases of beef and chicken. B. reducing purchases of beef and chicken. C. substituting chicken for beef. D. substituting beef for chicken.
If a binding price ceiling were placed in the market in the graph shown:
A. the supply curve would have to shift. B. quantity supplied would exceed quantity demanded. C. quantity demanded would exceed quantity supplied. D. the demand curve would have to shift.