End of Semester Test Guidelines

End of Semester Test In a game, a Nash equilibrium is reached only if the players: A) have no best response for the choices made by other players. B) understand the game and the payoffs associated with each strategy. C) use backward induction method to develop their strategies. D) follow a mixed strategy. B) understand the game and the payoffs associated with each strategy. A profit maximizing monopoly's price is A) less than the price that would prevail if the industry was perfectly competitive. B) not consistently related to price that would prevail if the market was perfectly competitive. C) greater than the price that would prevail if the industry was perfectly competitive. D) the same as the price that would prevail if the industry was perfectly competitive. C) greater than the price that would prevail if the industry was perfectly competitive. The incidence of a tax depends on whether the government collects the tax from buyers or sellers. False True or False Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this? C) Technological advances such as cable television has increased A) The supply of star athletes has decreased. the demand for sports entertainment. B) The market power of athletes' unions has increased. C) Technological advances such as cable television has increased the demand for sports entertainment. D) The supply of star athletes has increased due to college athletic programs. If in the market for peaches the supply curve has shifted to the left, A) the quantity of peaches supplied has increased. B) the supply of peaches has decreased. C) the supply of peaches has increased. D) the quantity of peaches supplied has decreased. B) the supply of peaches has decreased. A best response is ________. A) one player's optimal action choice taking the other player's action as given B) an action choice that always results in a zero payoff to the opponent C) an action choice that results in equal payoffs to all the players in a game D) one player's optimal action choice irrespective of the action of the other player A) one player's optimal action choice taking the other player's action as given Economic efficiency in a free market occurs when A) price is as low as possible. B) the sum of consumer surplus and producer surplus is maximized. C) producer surplus is maximized. D) consumer surplus is maximized. B) the sum of consumer surplus and producer surplus is maximized. Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that A) the law of demand has been violated. 1/5 D) the demand for tarot card readers has increased. B) the number of tarot card readers has increased. C) tarot card readers are deliberately charging high prices because they provide services for superstitious clients. D) the demand for tarot card readers has increased. Price elasticity of demand measures A) how responsive quantity demanded is to a change in price. B) how responsive suppliers are to price changes. C) how responsive sales are to a change in buyers' incomes. D) how responsive sales are to changes in the price of a related good. A) how responsive quantity demanded is to a change in price. The demand curve for a monopoly's product is A) the market demand for the product. B) undefined. C) more inelastic than the market demand for the product. D) more elastic than the market demand for the product. A) the market demand for the product. A firm's primary interest when it hires an additional worker is A) whether or not the new worker gets along with the firm's existing workers. B) the cost of hiring the additional worker. C) how average output of the firm will be affected by this new worker. D) the extra revenue the firm realizes from hiring that worker. D) the extra revenue the firm realizes from hiring that worker. In cities with rent controls, the actual rents paid can be higher than the legal maximum. One explanation for this is A) rent control laws are so complicated that landlords and tenants may not be aware of what the legal price is. B) because there is a shortage of apartments, tenants often are B) because there is a shortage of apartments, tenants often are willing to pay rents higher than the law allows. willing to pay rents higher than the law allows. C) landlords are allowed to charge more than the legal maximum on some apartments so long as they charge less on others. D) the legal penalty landlords face for charging more than the legal maximum rent is less than the revenue earned by charging their tenants more than the maximum rent. What does the phrase "internalizing an external cost" mean? A) prohibiting economic activities that create externalities B) forcing producers to factor into their production costs the cost B) forcing producers to factor into their production costs the cost of the externalities created in the production of their output of the externalities created in the production of their output C) finding a way to address cross-border pollution D) limiting the extent to which domestic firms can outsource production Which of the following is a positive economic statement? A) The U.S. government should increase regulations on the banking industry. B) If the price of beef falls, a larger quantity of it will be bought. C) The government should implement a national consumption tax. D) The standard of living in the United States is too low. B) If the price of beef falls, a larger quantity of it will be bought. The highest valued alternative that must be given up to engage in an activity is the definition of A) marginal benefit. B) opportunity cost. C) economic equity. D) marginal cost. B) opportunity cost. 2/5 An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? B) adverse selection A) asymmetric information B) adverse selection C) economic irrationality D) moral hazard The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as C) the budget constraint. A) maximizing behavior. B) economizing behavior. C) the budget constraint. D) the price constraint. The public choice model A) examines the public's role in appointing politicians and ensuring that elected officials act in ways to reflect the public's preferences. B) applies economic analysis to government decision making. C) examines the degree of market power that the public exerts in a market economy. D) applies economic analysis to the collective decision making of consumers. B) applies economic analysis to government decision making. What is the principal-agent problem? A) It is a problem caused by a person (principal) who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way. B) It is a problem caused by agents pursuing their own interests B) It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them. rather than the interests of the principals who hired them. C) It is a problem that exists when a person (principal) has more information about the task than the agent he hires to perform the task. D) It is a problem of the power system of boss and subordinate where the boss (principal) exerts influence over his subordinates (agents) using punishment or threat. A monopoly is characterized by all of the following except A) the firm has market power. B) entry barriers are high. C) there are only a few sellers, each selling a unique product. D) there are no close substitutes to the firm's product C) there are only a few sellers, each selling a unique product. The extra cost associated with undertaking an activity is called A) foregone cost. B) opportunity cost. C) marginal cost. D) net loss. C) marginal cost. If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until A) quantity demanded equals quantity supplied. The equilibrium B) quantity demanded equals quantity supplied. The market price price will then be lower than the market price. will then equal the equilibrium price. B) quantity demanded equals quantity supplied. The market price will then equal the equilibrium price. C) all consumers will be able to afford the product. 3/5 D) the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium. Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A) public goods B) private goods C) quasi-public goods D) common resources A) public goods Which branch of economics considers that economic agents do not always act rationally? A) Behavioral economics B) Macroeconomics C) Microeconomics D) Econometrics A) Behavioral economics When there few close substitutes available for a good, demand tends to be A) perfectly elastic. B) perfectly inelastic C) relatively elastic D) relatively inelastic D) relatively inelastic The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called A) the income effect. B) producer surplus. C) consumer surplus. D) the substitution effect. C) consumer surplus. Which of the following is true of a simultaneous move game? A) All relevant benefits and costs of each action are taken into account. B) This game cannot be represented by a payoff matrix. C) It involves strategic interactions among a large number of players. D) Players choose their actions after knowing the action of the first player. A) All relevant benefits and costs of each action are taken into account. When people who buy insurance change their behavior after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of D) moral hazard A) asymmetric information. B) economic irrationality. C) adverse selection. D) moral hazard. All else equal, as the price of a product falls, the quantity supplied increases. False True or False Which of the following is not a result of government price controls? A) Price controls decrease economic efficiency. C) Price controls benefit poor consumers but harm producers and B) Some people win and some people lose. wealthy consumers. C) Price controls benefit poor consumers but harm producers and wealthy consumers. D) A deadweight loss will occur. 4/5 Ranchers can raise either cattle or sheep on their land. Which of the following would cause the supply of sheep to increase? A) an increase in the price of sheep B) an increase in the demand for sheep C) a decrease in the price of cattle D) an increase in the price of sheep feed C) a decrease in the price of cattle An externality is A) a benefit realized by the purchaser of a good or service. B) a benefit or cost experienced by someone who is not a producer B) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. or consumer of a good or service. C) anything that is external or not relevant to the production of a good or service. D) a cost paid for by the producer of a good or service. Which of the following statements about rent seeking is false? A) A person is engaging in rent-seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. B) Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must C) Because rent seeking redistributes society's resources, anyone compete for. engaging in such behavior is violating the law. C) Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. D) If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market. The demand for labor is described as a derived demand because A) it is derived by producers seeking to make profits by starting new businesses. B) it is derived by workers seeking to earn income to fund the C) it is derived from the demand for products that use labor in the consumption of goods and services. production process. C) it is derived from the demand for products that use labor in the production process. D) it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue. Which of the following is a source of market failure? A) incomplete property rights or inability to enforce property rights B) an inequitable income distribution A) incomplete property rights or inability to enforce property rights C) unforeseen circumstances which leads to the bankruptcy of many firms D) a lack of government intervention in a market 5/5