Econ midterm
Which of the following statements is correct?
A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.
Figure 5.4 shows Angela and Bruno's feasible frontier, and Angela's biological survival constraint. Based on this figure, which of the following is correct?
A new technology that boosted grain production would result in a bigger technically feasible set.
According to the Great Economists box in Section 1.3 of The Economy, which of the following statements regarding Adam Smith are correct
Adam Smith claimed that coordination among large number of economic actors (producers, transporters, sellers, consumers), often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. Adam Smith believed in the role of the government to improve societal welfare.
Figure 5.8 shows the Pareto efficiency curve CD for the interaction between Angela and Bruno. Which of the following statements is correct?
Angela's marginal rate of substitution is equal to the marginal rate of transformation at all points on the Pareto efficiency curve.
In Figure 5.10, Angela and Bruno are at allocation F, where she receives 3 bushels of grain for 4 hours of work. From the figure, we can conclude that:
Any point in the area between G, H and F would be a Pareto improvement.
In Figure 5.9, D and F are the outcomes before and after the introduction of a new law that limits Angela's work time to four hours a day while requiring a minimum pay of 4.5 bushels. Based on this information, which of the following statements are correct?
Both Angela and Bruno receive economic rents at F. As a result of the new law, Bruno has less bargaining power.
An equation that represents all combinations of goods and services that one could acquire that exactly exhaust one's budgetary resources.
Budget constraint
Consider a world of just two individuals, Greta and Carlos, who each need both of two goods, apples and wheat, to survive. They differ in how productive they are in growing apples and wheat. Based on this information, which of the following statements is correct?
Carlos has a comparative disadvantage in producing apples.
In a prisoner's dilemma-type game, such as the one with Anil and Bala choosing which pesticide to use, IPC/IPC is not a mutual best response because:
Each player has an incentive to move to Terminator.
Capitalism is an economic system in which private property, markets, and firms play an important role. Which of the following statements related to the terms in this definition are correct?
Employee-owned cooperatives are not firms. An economic system is a way of organising the production and distribution of goods and services in an entire economy.
Which of the following statements regarding substantive judgements of fairness is correct?
Fairness may depend on the individual's freedom to choose without socially imposed limits.
Which of the following economic institutions play an important role in capitalism as an economic system?
Families. Government. Private property. Markets.
All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faces.
Feasible set
Which of the following are examples of free riding?
Fellow students benefitting from your efforts in a group work assignment. Fare dodgers on the subway. Small shareholders, having not read the accounts or the reports, are allowed to vote with large investors at a shareholders? meeting. Fishermen in an overfished lake
Which of the following statements regarding the labour market are correct?
Firms are the demand side of the labour market. Wages are the prices in the labour market that determine the level of demand and supply
The following figure shows a model of free time and consumption per day across countries in 2013. Assume that the nationals of the US and Turkey have the same preferences (the same set of indifference curves) and those of Mexico and Netherlands have the same preferences. From the information given, we can conclude that:
For Turkish nationals, the income and substitution effects roughly cancel each other out if their wage level is increased to that of the US.
Which of the following statements is correct?
GDP per capita is a better (more holistic) measure of living standards than disposable income.
An individual's well-being can be partly measured by
Goods and services that are produced within the household, such as meals and childcare. Her disposable income. The quality of her social and physical environment, such as friendship and clean air. Goods and services that are provided by the government, such as healthcare and education.
Which of the following leads to higher GDP?
Higher government expenditure on education. Rebuilding and reopening an abandoned shopping mall, which is immediately occupied by new businesses. Building a new manufacturing factory, which requires the clearing of forests.
Figure 1-12 suggests that economics and society should be concerned about:
How the economy interacts with the environment
Which of the following statements about the outcome of an economic interaction is correct?
If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off.
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?
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.
The effect that the additional income would have if there were no change in the price or opportunity cost.
Income effect
Which of the following are examples of private property?
Library books from your school or university. Slaves (in historical times)
A curve of the points which indicate the combinations of goods that provide a given level of utility to the individual.
Indifference curve
Private property, markets, and firms are the key __________ shared by all capitalist economies.
Institutions
The trade-off that a person is willing to make between two goods. At any point, this is the slope of the indifference curve.
Marginal rate of substitution (MRS)
The quantity of some good that must be sacrificed to acquire one additional unit of another good. At any point, it is the slope of the feasible frontier.
Marginal rate of transformation (MRT)
A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else.
Nash equilibrium
Eden, a country, produces just two output goods: apples and snakeskin handbags. The quantities produced and the prices of the two goods in 2016 and 2017 (in $) are given below. Based on this information, which of the following statements is correct?
Nominal GDP growth rate between 2016 and 2017 was 9.1%
Which of the following statements regarding democracy as a political system is always true?
Virtually all adults are eligible to vote in an election.
You are given the following graph of Gini coefficients for Britain, the United States and the Netherlands. The information in the figure suggests that:
Over time, capitalist economies can become less as well as more equal.
Capitalism as an economic system can be dynamic and successful because:
Profits are claimed by the capitalists. It allows failing firms to go bankrupt
According to Elinor Ostrom, which of the following statements about the problem of ?tragedy of the commons? are correct?
Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. Even if all individuals were completely selfish, repeated interactions would definitely result in cooperative outcomes. Individuals care about trust and reciprocity. Agreements for cooperation must be enforced by governments
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:
Steeper and goes through Z.
The effect that is only due to changes in the price or opportunity cost, given the new level of utility.
Substitution effect
The increased ability of humans to provide light, grow food, and communicate information are all examples of:
Technological progress
The following graph shows the northern hemisphere?s temperature since year 1000, reported as the deviation from the 1961-90 mean temperature. Based on this information, which of the following statements is correct?
The 1961-90 mean temperature was 0.2 to 0.4 degrees higher than the temperature between 1450 and 1900
The following diagram shows the Lorenz curves for the factor (the market) income and the disposable income of the Netherlands in 2010. The disposable income is the factor income plus any taxes and 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 the factor income is higher than that for the disposable income. The taxes and the transfers reduce income inequality in the Netherlands
The figure shows a student?s production function with the final grade (the output) related to the number of hours spent studying (the input). Which of the following statements regarding marginal product of labour (MPL) are correct?
The MPL is the slope of the tangent line. Beyond the first hour, the MPL is strictly less than the average product of labour.
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 can be an empty set.
The following diagram shows a farmer?s choice between free time and grain before (A) and after (B) an improvement in technology. Based on this information, which of the following statements are correct?
The farmer may choose a point on either side of B after the technology improvement. If the MRS of the indifference curve at B is larger than the MRS of the indifference curve at A, then this gives the farmer an incentive to take more free time after the technology improvement.
In a simultaneous one-shot prisoners' dilemma game with completely self-interested players:
The players' payoffs are lower in the dominant strategy equilibrium than in some other outcomes.
Consider an individual's indifference curves for the consumption of two goods (things you would like to have more of). In this case, which of the following statements are true?
The indifference curves are downward-sloping.
The diagram shows a student's indifference curves for hours of free time per day and final grade. Based on this graph, which of the following statements is correct?
The marginal rate of substitution at B is smaller than 9.
Consider an ultimatum game where the Proposer has $100 and offers a proportion of it to the Responder, who can either accept or reject the offer. If the Responder accepts, both the Proposer and the Responder keep the agreed share, while if the Responder rejects, then both receive nothing. Which of the following statements is correct?
The next best alternative for both players is $0.
The average product of labour is diminishing when:
The production function is concave. The marginal product of labour is smaller than the average product of labour. The marginal product of labour is negative
Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct?
The worker may or may not reduce his free time as a result of the wage cut.
Which of the following statements regarding social preferences are correct?
They are the preferences of society as a whole. Altruism is an example of social preferences. An individual has social preferences if he does not care about the outcomes of others in society. ?Keeping up with the Joneses? is an example of behaviour that could be motivated by social preferences.
Which of the following is an example of a social dilemma?
Traffic jams due to a sub-optimally high level of car usage. Dirty dishes piling up in the kitchen sink of your shared student accommodation.
Figure 5.7a shows Angela and Bruno's feasible frontier, Angela's biological survival constraint and her reservation indifference curve. B is the outcome under coercion, while D is the outcome under voluntary exchange when Bruno makes a take-it-or-leave-it offer. Looking at this graph, we can conclude that:
With a take-it-or-leave-it offer, Bruno's economic rent is equal to the joint surplus.
The following is a plot of GDP per capita against average annual hours of free time per worker in different countries. Which of the following statements is correct?
Workers in the US and Turkey enjoy a similar amount of free time despite the huge disparity of income.
Currently, you work for 40 hours per week for a wage of £20 an hour. Your free hours are defined as the number of hours per week not spent working, which in this case is (24 hours x 7 days) - 40 hours = 128 hours per week. Suppose now that your wage rate has increased by 25%. If you are happy to keep your total weekly income constant, then:
Your total number of free hours per week will increase by 6.25%.
In game theory, the strategy that will give a player the highest payoff, given the strategies that the other players select.
best response
Action that yields the highest payoff for a player, no matter what the other players do.
dominant strategy
The out-of-pocket cost of an action, plus the opportunity cost.
economic cost
A payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option). See also: reservation option.
economic rent
A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs. See also: game theory.
games
In the ultimatum game, the smallest offer by the Proposer that will not be rejected by the Responder. Generally applied in bargaining situations to mean the least favourable offer that would be accepted.
minimum acceptable offer
When taking an action implies forgoing the next best alternative action, this is the net benefit of the foregone alternative
opportunity cost
The benefit to each player associated with the joint actions of all the players
payoffs
A game in which the payoffs in the dominant strategy equilibrium are lower for each player, and also lower in total, than if neither player played the dominant strategy.
prisoners' dilemma
A game in which all players do not choose their strategies at the same time, and players that choose later can see the strategies already chosen by the other players, for example the ultimatum game.
sequential game
A game in which players choose strategies simultaneously, for example the prisoners' dilemma.
simultaneous game
An understanding that is common to most members of a society about what people should do in a given situation when their actions affect others
social norm
A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them).
strategic interaction
An action (or a course of action) that a person may take when that person is aware of the mutual dependence of the results for herself and for others. The outcomes depend not only on that person's actions, but also on the actions of others.
strategy