Utility is maximized for the consumption of two goods when:
a. the price of the first good equals the price of the second good
b. the marginal utility per dollar spent is equal for both goods consumed.
c. the quantity consumed of the first good equals the quantity consumed of the second good.
d. the total utility of the first good equals the total utility of the second good.
b
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Equilibrium GDP occurs when total spending equals total output.
Answer the following statement true (T) or false (F)
Consider an Edgeworth Box economy with two individuals and two goods and suppose that the tastes of both individuals are quasilinear in good 1. a. Suppose initially that individual 1 has relatively little endowment of both good but the competitive equilibrium allocation has him consuming some of each. Illustrate such a competitive equilibrium. b. Now suppose the government is able to redistribute the endowment in this economy (prior to any trade occurring). In order to achieve a more equitable outcome, the government redistributes some of good 1 from individual 2 to individual 1. Show such a redistribution in your Edgeworth Box. c. Assume that both individuals continue to consume at an interior solution in the new equilibrium. How will the two individuals' consumption of good 1 change
from what it would have been without the redistribution? d. Would your answer to (c) differ in any way if the government had instead redistributed good 2 from individual 2 to individual 1? e. How would a sufficiently large redistribution alter your answer? What will be an ideal response?
When economic profits are zero, accounting profits
A) must be positive. B) will be negative. C) will equal zero. D) could be positive, negative or zero.
The Boskin Commission found that the CPI ______ the true inflation rate.
A. understates B. is independent of C. precisely measures D. overstates