unit 5

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno as rent for the use of the land. Consider the following figure, which shows Angela’s and Bruno’s combined feasible set. Based on the figure, which of the following statements are correct?

• 
  G and/or E can be Angela’s choice, depending on the shape of her indifference curves.

 

• Angela can be indifferent between G and H.

 

• Angela prefers G to working 12 hours and consuming 10 bushels.

 

• If Bruno is totally selfish, then H is his most preferred allocation of the four.
  

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno as rent for the use of the land. Consider the following figure, which shows Angela’s and Bruno’s combined feasible set. Based on the figure, which of the following statements are correct?

• 
  G and/or E can be Angela’s choice, depending on the shape of her indifference curves.

 

• Angela can be indifferent between G and H.

 

• Angela prefers G to working 12 hours and consuming 10 bushels.

 

• If Bruno is totally selfish, then H is his most preferred allocation of the four.
  

G and/or E can be Angela’s choice, depending on the shape of her indifference curves.

Angela can be indifferent between G and H.

If Bruno is totally selfish, then H is his most preferred allocation of the four.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier, and Angela’s biological survival constraint. Based on this information, which of the following statements is true?

 

• Angela’s reservation option is to not work and consume 2.5 bushels of grain.

 

• The technically feasible set includes the entire feasible frontier.

 

• The maximum that Bruno can claim is 9.5 bushels of grain.

 

• A new grain production technology would allow Angela to work 22 hours and 1 minute and still survive.

A new grain production technology would allow Angela to work 22 hours and 1 minute and still survive.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. Angela and Bruno’s feasible frontier is downward sloping and concave, while Angela’s biological survival constraint is downward sloping and convex (as shown in the figure). If Bruno has all the bargaining power, which of the following statements is correct?

 

• The marginal rate of transformation (MRT) of work hours into grain output is the slope of Angela’s biological survival constraint, while the marginal rate of substitution (MRS) of work hours into subsistence requirements is the slope of the feasible frontier.

• When the MRT of work hours into grain output is greater than the MRS of work hours into subsistence requirements, then Bruno should decrease Angela’s free time. 

• When the MRT of work hours into grain output is lower than the MRS of work hours into subsistence requirements, then Angela’s allocation of grain should be increased.

• Angela’s most preferred option is where the MRT equates her MRS.

When the MRT of work hours into grain output is greater than the MRS of work hours into subsistence requirements, then Bruno should decrease Angela’s free time.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint, and her reservation indifference curve. If Angela does not work, she receives a ration of 2.5 bushels from the government. Which of the following statements is correct?

 

• The economically feasible set is the area between Angela’s biological survival constraint and the feasible frontier.

• Angela’s reservation indifference curve can be below her biological survival constraint.

• Angela’s reservation indifference curve may not necessarily go through Z.

• The economically feasible set can be an empty set.

The economically feasible set can be an empty set.

The ultimatum game and the interaction between Angela the farmer and Bruno the landowner are similar because:

• Like the Proposer in the ultimatum game, Bruno has more bargaining power.

• As in the ultimatum game, if Bruno’s offer to Angela is refused, Bruno (the Proposer) ends up with nothing.

• As in the ultimatum game where the presence of more than a single responder results in the proposer getting more, Bruno will get more if there are many farmers in a situation similar to Angela.

all of them

Consider the following figure, showing Angela’s biological survival constrant, reservation indifference curve, and the feasible frontier. In which of the following cases would the area of the economically feasible set increase? (In each case assume that all other factors remain the same).

• New technology increases Angela’s productivity.

 

• Angela’s ration from the government is increased to 3 bushels.

• Angela becomes leaner and is able to survive on less bushels of grain.

• Angela becomes less keen to work and would demand more grain for each extra hour of work.

New technology increases Angela’s productivity.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint and her reservation indifference curve. Currently, if Angela does not work she receives a ration of 2.5 bushels from the government. Of the four depicted in the figure, which allocation strictly Pareto dominates Z?

 

• (a)

• (b)

• (c)

• (d)

d

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint and her reservation indifference curve. Based on the figure, which of the following statements is correct?

 

• If Bruno can use coercion then he would force Angela to work 21 hours to maximise total production.

 

• In a voluntary exchange where Bruno has all the bargaining power, B is the best choice for Bruno as it maximises his rent.

• In a voluntary exchange where Bruno has all the bargaining power, if Bruno charges 4.5 bushels of rent for the use of his land then Angela would choose to work 8 hours.

• If Angela owned the land instead, then she would choose A, where her rent is maximised.

In a voluntary exchange where Bruno has all the bargaining power, if Bruno charges 4.5 bushels of rent for the use of his land then Angela would choose to work 8 hours.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint and her reservation indifference curve. Bruno makes a take-it-or-leave-it offer to Angela. As Angela gets older, she requires more grain for her subsistence but is happy to work an extra hour for less grain than when she was younger. There is, however, no change in her productivity. Based on this information, which of the following statements is correct?

 

• Under coercion, Bruno will make Angela work more than 11 hours.

• Under coercion, output is now higher.

• Under voluntary exchange, Angela’s rent is now higher.

• Under voluntary exchange, Bruno’s rent is higher than 4.5 bushels of grain.

Under voluntary exchange, Bruno’s rent is higher than 4.5 bushels of grain.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno’s feasible frontier and Angela’s reservation indifference curve. F is above her reservation indifference curve, and Angela’s preferences are quasi-linear. Based on this information, which of the following statements is correct?

 

• Moving from F to any point on line CD is Pareto-improving.

 

• Depending on the slope of the feasible frontier, both Bruno and Angela can be better off at F than at D.

• F is not Pareto efficient as the marginal rate of substitution does not equal the marginal rate of transformation at this point.

• The relative bargaining power of Bruno and Angela determines the number of hours worked along the Pareto efficiency curve.

F is not Pareto efficient as the marginal rate of substitution does not equal the marginal rate of transformation at this point.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land, where Bruno makes a take-it-or-leave-it offer. The figure shows Angela and Bruno’s feasible frontier and Angela’s reservation indifference curve. Now the government introduces new laws that limits Angela’s work time and/or sets a minimum pay in bushels of grain. If D is the outcome before any laws, which of the following statements is correct?

 

• If the new law limits Angela’s working hours to 4 hours, then the outcome will be F.

 

• If the new law sets the minimum pay to 4.5 bushels, then the outcome will be I.

 

• If the new law limits Angela’s working hours to 8 hours and sets the minimum pay to 6.5 bushels, then the outcome will be C.

• If the new law limits Angela’s working hours to 10 hours and sets the minimum pay to 4.5 bushels, then the outcome will be D.
  

If the new law limits Angela’s working hours to 10 hours and sets the minimum pay to 4.5 bushels, then the outcome will be D.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land, where Bruno makes a take-it-or-leave-it offer. The figure shows Angela and Bruno’s feasible frontier and Angela’s reservation indifference curve. Now the government introduces new laws that limits Angela’s work time and/or sets a minimum pay in bushels of grain. If D is the outcome before any laws, and the new outcome moves from D as the result of the law, which of the following statements is correct?

• The new outcome may remain Pareto efficient.

• Both Bruno and Angela are always worse off as a result of the new laws.

• The surplus is reduced.

• The relative bargaining power of Bruno and Angela changes.

The new outcome may remain Pareto efficient.

In the following figure, a new legislation that restricts Angela’s hours of work to 4 hours and sets her minimum pay to 4.5 bushels has moved the allocation outcome from D to F. However, the legislation also states that longer hours are permitted if both parties agree. Based on this information, which of the following statements are correct?

Correct!

 

• If Angela can make a take-it-or-leave-it offer, then H would be the final outcome.

• If Bruno can make a take-it-or-leave-it offer, then D would be the final outcome.

• If Angela and Bruno are to share the extra surplus, then any points in triangle HGF can be the final outcome.

• The overall effect of the legislation is to change the relative bargaining power of Bruno and Angela.

The overall effect of the legislation is to change the relative bargaining power of Bruno and Angela.

If Angela can make a take-it-or-leave-it offer, then H would be the final outcome.

The figure below shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint, and her reservation indifference curve, when Angela would accept any offers strictly better than her reservation position of no work and 2 bushels of survival rations from the government. Now consider the case where Angela cares about the fairness of distribution, such that she can reject an offer that she considers unfair and choose not to work. In such a case Bruno will also receive no income. Then, compared to the reservation indifference curve depicted above, Angela’s new reservation indifference curve is:

 

• Shifted higher at all points.

 

• The same.

• Steeper and goes through Z.

• The midpoint between the feasible frontier and the biological survival constraint.

• Steeper and goes through Z.

The figure below shows Angela and Bruno’s feasible frontier, Angela’s biological survival constraint, and her reservation indifference curve. The total amount of grain produced is 8 bushels if Angela works for 8 hours, and 10 bushels if she works for 11 hours. From this information, we can conclude that:

 

• Bruno can devise a take-it-or-leave-it offer under voluntary exchange that makes him just as well off as the best outcome under coercion.

• Under Bruno’s best voluntary exchange outcome, he can claim an economic rent of 5 out of the total surplus of 6.

• Under voluntary exchange, Angela will choose not to work if she is offered 2 bushels of grain for 16 hours of free time.

• Bruno can increase his share by 2 bushels if he could coerce Angela to work 11 hours, compared to under the voluntary exchange outcome.

Under voluntary exchange, Angela will choose not to work if she is offered 2 bushels of grain for 16 hours of free time.

Which of the following statements regarding the Gini coefficient are correct?

• It is the measure of the average difference in income between every pair of individuals in the population.

• It can be calculated exactly as g=A/(A+B), where A is the area between the Lorenz curve and the 45-degree line, and A + B is the area under the 45-degree line.

• The fraction A/(A+B) is an accurate approximation when the population is small.

It is the measure of the average difference in income between every pair of individuals in the population.

The figure below is the Lorenz curve of a population. Based on this figure, which of the following statements are correct?

• 50% of the population owns 100% of the land.

• 30% of the population owns 1% of the land each.

• 20% of the population owns 2% of the land each.

• 50% of the population owns 100% of the land.

• 30% of the population owns 1% of the land each.

The figure shows the Lorenz curve for market income and disposable income in the Netherlands in 2010. Which of the following statements are correct?

• The difference between market income and disposable income is taxes and cash transfers.

• The Gini coefficient is larger for disposable income than for market income.

• One-fifth of the Dutch population have virtually no market income.

• The poorest one-fifth of the population receive about 20% of all disposable income.

One-fifth of the Dutch population have virtually no market income.

The difference between market income and disposable income is taxes and cash transfers.

You are given the following graph of Gini coefficients over the past three centuries for three capitalist economies: Britain, the US, and the Netherlands. The information in the figure suggests that:

 

• Capitalist economies tend to have similar degrees of equality.

 

• In the most recent decade where data is available, the US and British economies are at their most unequal level since the 1750s.

• Over time, capitalist economies can become less as well as more equal.

• Over time, capitalist economies can become less as well as more equal.

The following diagram shows the Lorenz curves for market income and disposable income for the Netherlands in 2010. Disposable income is market income minus any taxes and plus any government transfers. A’ is the area between the perfect equality line and the disposable income Lorenz curve, while B’ is the area under the disposable income Lorenz curve. Based on this information, which of the following statements are correct?

 

• The Gini coefficient for disposable income is the ratio A’/B’.

• The Gini coefficient for market income is higher than that for disposable income.

• Taxes and transfers reduce income inequality in the Netherlands.

• After taxes and transfers, the poorest 50% of the population receive about 20% of the total income.

The Gini coefficient for market income is higher than that for disposable income.

Taxes and transfers reduce income inequality in the Netherlands.