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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The graph shows the market for holiday condos in West Palm Beach. If a rent ceiling is set at $1,700 a week, the quantity of holiday condos rented
A) is 2,000 a week. B) is 4,000 a week. C) is 5,000 a week. D) is some amount, but more information is needed to determine the amount. E) depends on the black market.
In a supply and demand figure, the equilibrium price and quantity are found at the
A) point where quantity supplied equals quantity demanded. B) horizontal intercept of the demand curve. C) vertical intercept of the supply curve. D) horizontal intercept of the supply and the demand curves.
Both Keynesians and supply-siders believe that tax cuts
a. will increase income by increasing aggregate supply. b. will increase income by increasing aggregate demand. c. will increase income but for different reasons. d. will increase income in the Keynesian model but decrease income in the Supply-side model.
If error in setting the policy is possible,
A) a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively flat. B) a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively steep. C) a standard generates smaller welfare losses than a fee when the MSC is relatively steep and the MCA is relatively flat. D) a standard generates smaller welfare losses than a fee when the MSC is relatively flat and the MCA is relatively steep. E) errors in standards and fees have equal welfare losses, so long as the errors are the same in percentage terms.