1.

An allocation in which one person can be made better off only by making
someone else worse off is
A) inefficient.
B) efficient.
C) a partial equilibrium.
D) a general equilibrium.

2. In a problem involving exchange, the contract curve shows

A) all exchanges that make both parties better off.
B) the one exchange that makes both parties better off.
C) all possible allocations of goods between both parties.
D) all possible efficient allocations between both parties.

3. The Edgeworth box illustrates possibilities for Karen and James to increase their
satisfaction by trading goods. If point A gives the initial allocation of food and
clothing, a movement into the shaded area:

A) leaves Karen better off, but James worse off.

B) leaves James better off, but Karen worse off.
C) leaves James and Karen worse off.
D) leaves James and Karen better off.

4. Which of the following is true at the exchange equilibrium between two

individuals?
A) Their marginal rates of substitution are equal.
B) The slopes of the individuals' indifference curves are equal.
C) Both individuals' marginal rates of substitution are equal to the ratio of the prices
of the goods.
D) A and B only
E) A, B, and C are all true.
5. Why is the production possibilities frontier concave to (bowed away from) the
origin?
A) Consumers have declining marginal utility, so their relative satisfaction from
consuming a good changes as they move from high levels to low levels of
consumption.
B) The shape of the curve is due to the marginal costs of producing the two goods.
At high levels of output for a particular good, the marginal cost is very high, and the
firm can use the same inputs to produce a relatively large quantity of the other good.
C) For a production possibilities frontier, we no longer assume firms are price takers,
and the input prices and output prices change as the firms alter their mix of outputs.
D) none of the above

6. The condition that requires MRTS for each input pair to equal the ratio of their
marginal costs is known as ________ efficiency, and the condition that requires
MRS for each output pair to equal their output price ratio is known as ________
efficiency.
A) economic, market
B) micro, macro
C) cost, revenue
D) technical, output

7. Canada produces MP3 players and lumber, and the marginal costs for the two
products are $200 per 1,000 board-feet of lumber and $100 per MP3 player. China
also produces these goods, and the marginal costs are $300 per 1,000 board-feet of
lumber and $100 per MP3 player. Which country has the comparative advantage in
lumber production?
A) Canada
B) China
C) Both countries share the comparative advantage.
D) We need more information to answer this question.

8. Use the following statements to answer this question.

I. A nation may have a comparative advantage in the production of a good without
having an absolute advantage in the production of any goods.
II. A nation may have a comparative advantage in the production of two or more
goods.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.