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Budget constraints and indifference curves

Figure 13.3 1. (Figure 13.3) The figure shows budget constraints and indifference curves for a representative individual. Identify the income effect of the increase in the wage rate in the associated graph. A) C to B B) B to C C) A to C D) A to B 2. (Figure 13.3) The figure shows budget constraints and indifference curves for a representative individual. Identify the substitution effect of the increase in the wage rate in the associated graph. A) C to B B) B to A C) A to C D) A to B 3. A monopsony has a marginal revenue product curve of MRPL = 100 – l and faces a labor supply curve of W = 1.5l. How many workers will the price taker hire? A) 100 B) 50 C) 25 D) 40 4. Which of the following statement(s) is (are) true? I. A labor union can choose to maximize profit, maximize total wages of its members, or accept the competitive wage. II. The number of workers employed when a union is present is generally greater than the number employed in a perfectly competitive labor market. III. The wage rate paid to union workers typically exceeds that of workers in a competitive market. A) I, II, and III B) III C) I and III D) II and III 5. The market for soybeans is characterized by = 18 – Ps and = Ps – 0.5Pc, where Qs is the quantity of soybeans in millions of bushels, Ps is the price per bushel of soybeans, and Pc is the price per bushel of corn. The market for corn is characterized by = 18 – Pc and = Pc – 0.5Ps, where Qc is the quantity of corn in millions of bushels. In general equilibrium, the equilibrium quantity of corn is _____ bushels, and that of soybeans is _____ bushels. A) 6 million; 6 million B) 9 million; 9 million C) 6.5 million; 6.5 million D) 16 million; 16 million 6. Brett, Art, and Isabel reside on a tiny island in the Pacific. All three of them have a utility function given by U = Y0.5, where Y is income per day. Suppose that Brett earns $7 per day, Art earns $25 per day, and Isabel earns $36 per day. What happens to the value of the utilitarian social welfare function If the government takes $9 of Art’s income and gives it to Brett? A) The utilitarian social welfare function will increase from 13.65 to 14. B) The utilitarian social welfare function will remain unchanged at 68. C) The utilitarian social welfare function will decrease from 15.50 to 12.30. D) The utilitarian social welfare function will increase from 8.20 to 12. Figure 15.6 7. (Figure 15.6) Which of the following allocations represents a Pareto improvement from point A? I. Eliza consumes 3 cups of tea and 3 crumpets, and Henry consumes 3 cups of tea and 4 crumpets. II. Eliza consumes 3 cups of tea and 4 crumpets, and Henry consumes 3 cups of tea and 3 crumpets. III. Eliza consumes 2 cups of tea and 4 crumpets, and Henry consumes 4 cups of tea and 3 crumpets. A) II and III B) II C) I and III D) I, II, and III Figure 15.7 8. (Figure 15.7) If the economy is at point B, the input mix is: A) not Pareto-efficient, so a movement to point C or point D would be a Pareto improvement. B) Pareto-efficient, so a movement to any other point would be Pareto-inefficient. C) not Pareto-efficient, so only a movement to point D would be a Pareto improvement. D) not Pareto-efficient, so a movement to point C or point D would be Paretoinefficient. 9. The MRTSLK is 5 in the cell phone industry and 8 in the tablet industry. The cell phone industry should use _____ labor and _____ capital, and the tablet industry should use _____ labor and _____ capital. A) more; more; less; less B) less; less; more; more C) more; less; less; more D) less; more; more; less 10. The First Welfare Theorem states that: A) perfectly competitive markets in general equilibrium distribute resources Paretoefficiently. B) all markets in general equilibrium—from perfectly competitive to monopoly— distribute resources Pareto-efficiently. C) only monopoly markets in general equilibrium distribute resources Paretoefficiently. D) perfectly competitive markets in general equilibrium distribute resources Paretoefficiently even in the face of asymmetric information, externalities, and public goods.

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