Consider an economy with two people, Li and Carlo, and two commodities, clothing and food. Currently, Li and Carlo would both be willing to give up 0.5 articles of clothing for one piece of food. Further, the workers in town can, in a given day, produce either 10 pieces of clothing or 50 pieces of food. Is the allocation of resources in this economy Pareto efficient? If not, should there be more clothing or more food? (Let the MRS=MUfood/MUclothing=the value of food in terms of clothing=how much clothing we would trade for 1 more food)

Mitchell and Scott can produce either apples or oranges. The table lists the maximum number of each that they can produce per day. Apples Oranges Mitchell 6 30 Scott 12 24 Which of the following combinations of goods is it possible for Mitchell and Scott to consume if they can trade apples and oranges on the world market at a price of $6/kg for apples and $1/kg for oranges? 15kg of apples and 18kg of oranges 15kg of apples and 20kg of oranges 10kg of apples and 50kg of oranges Okg of apples and 108kg of oranges

Simone likes peanut butter and jelly (PB&J) sandwiches. When Simone makes a PB&J sandwich she always uses 4 tablespoons of peanut butter and 2 tablespoons of jelly. Suppose that the price of peanut butter is $0.05 per tablespoon and that the price of jelly is $0.15 per tablespoon. Simone lives above a bakery and receives free day old bread from her baker friend. The amount of Simone's income spent on PB&J sandwiches is $8 a week. Which of the following statements is true? A. Simone's indifference curves for peanut butter and jelly are normal indifference curves. B. Simone's indifference curves for peanut butter and jelly are straight lines, since she always eats peanut butter and jelly in a particular combination. C. Simone's indifference curves for peanut butter and jelly each have a right angle, since peanut butter and jelly are perfect complements for Simone. D. Simone maximizes her utility from PB&J sandwiches by consuming 8 sandwiches a we O E. Answers (C) and (D) are both true.

Assume that you are on an island where there are only two commodities—coconuts and pineapples—and you can spend your income only on these two foods. If the price of coconuts is Pc and the price of pineapples is Pp and your income is I, draw a budget constraint, carefully labelling the points on the two axes and where the attainable and unattainable portions of consumption are. Note: you can choose any Pc and Pp that you like—they do not have to be equal. What is the slope of this budget constraint? What is the economic interpretation of the slope? Now, let’s bring a little more structure to this diagram. Let I=£200, Pc=£1 per coconut and Pp=£2 per pineapple. Draw a new diagram using these numbers. Consider these questions: How many coconuts can you buy if you do not buy any pineapples? How many pineapples can you buy if you do not buy any coconuts? What is the slope and what economic information does it give us? Show the point of 100 coconuts and 100 pineapples on your diagram. Can…

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Question 6 Listen Efficient resource allocation should be accomplished when any production of a product shows the marginal benefit outweighs marginal cost of its output. 1) True 2) False Question 7 ) Listen If we say that two variables are inversely related, this means that an increase in one variable is associated with a decrease in the other. 1) True 2) False Question 8 ) Listen Consider the problem Amy faces of how to allocate her weekly allowance between books and videos. An increase in Amy's allowance will a) shift her budget line to the right b) rotate her budget line, allowing her to buy more videos but not more books c) rotate her budget line, allowing her to buy more books but not more videos O d) shift her budget line to the left

Solve the attachment.

If an allocation is already Pareto efficient and if indifference curves between the two goods have no kinks, then a. two consumers who consume both goods must have different MRS's between them, but consumers may consume the goods in different ratios. b. two consumers with the same income who consume both goods must have the same MRS, but if their incomes differ, their MRS's may differ. c. any two consumers who consume both goods must always consume them in the same ratio. d. one consumer can be made better off but always at the expense of the other. e. all consumers receive the bundle that they prefer the most among all bundles on the entire Edgeworth box.

(From last year’s final exam) Using an Edgeworth box, draw the following scenario. Amanda and Genevieve are in a 2-person closed economy where they only consume 2 goods: cheese and oranges. Amanda initially has 10 circles of cheese and 2 oranges and Genevieve initially has 12 oranges and 1 circle of cheese. Genevieve is tired of oranges and would like more cheese. Likewise, Amanda has eaten too much cheese in the past and would prefer more oranges. Assume that they engage in a series of trades and in the end settle on the following deal: Amanda gives Genevieve 4 circles of cheese in exchange for 6 oranges. Make sure to indicate on your graph: i. all of the axes, ii. indifference curves at the initial endowment (assume usual, well-behaved, convex indifference curves), iii. and indifference curves at the final bundle that emerged as an equilibrium through trade.

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