Exam 1

Prisoners Dilemma

A game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off.

Nash Equilibrium

A situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen.

According to the World Bank, real per capita income in the U.S. increased from $57,640 in 2015 to $58,030 in 2016. What was the approximate annual growth rate? A. 0.7% B. 1.0% C. 6.8% D. $390

A. 0.7%

Which of the following statements regarding Adam Smith are correct? A. Adam Smith claimed that coordination among large number of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. B. Adam Smith advocated that economic agents were guided entirely by self-interest. C. Adam Smith argued that all markets were characterized by perfect competition. D. Adam Smith believed there should be no government involvement in the economy.

A. Adam Smith claimed that coordination among large number of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it.

Which of the following statements regarding social preferences is correct? A. Altruism is an example of social preferences. B. Social preferences are the preferences of a society as a whole. C. An individual has social preferences if they do not care about inequality in society. D. "Keeping up with the Joneses" (i.e. envy) is not an example of behavior motivated by social preferences.

A. Altruism is an example of social preferences.

Diminishing average product of labor means... A. As more labor is used in a production process, the amount produced per worker decreases. B. That there are less workers working a plot of land. C. As more labor is used in a production process, the amount produced per worker increases. D. That the the number of workers employed in the production process has no impact on the amount produced per worker.

A. As more labor is used in a production process, the amount produced per worker decreases.

Which of the following statements regarding Nash equilibrium are correct? A. In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. B. Some players have an incentive to deviate from a Nash equilibrium. C. A dominant strategy equilibrium is not a Nash equilibrium. D. A Nash equilibrium will always exist.

A. In a Nash equilibrium, all players choose their best response strategy given the other players' strategies.

According to Elinor Ostrom, which of the following statements about the problem of tragedy of the commons are correct? A. Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. B. Repeated games would definitely result in cooperative outcomes. C. Reciprocity exacerbates the tragedy of the commons. D. Agreements for cooperation must be enforced by governments.

A. Social norms can be drawn on to enforce sustainable resources, although it does not always succeed.

In Britain before 1870, both wages and hours worked rose, while after 1900 working hours fell as wages continued to rise. Based on this information, which of the following statements is correct? A. The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900. B. In the period before 1870, the income effect dominated the substitution effect. C. After 1900, the substitution effect dominated the income effect, so that hours of free time rose. D. Sometime between 1870 and 1900 the substitution effect of a rise in the wage rate on the hours of free time changed from negative to positive.

A. The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900.

Imagine an economy that grows at a constant rate for the 21st century. A plot of the level of GDP over time will fit: A. A straight upward-sloping line on a linear scale, and a convex line on a linear scale. B. A convex line on a linear scale, and a straight upward-sloping line on a ratio scale. C. A concave line on a linear scale, and a straight upward-sloping line on a ratio scale. D. A downward-sloping line on both a linear scale and a ratio scale.

B. A convex line on a linear scale, and a straight upward-sloping line on a ratio scale.

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? A. The Responder should not accept any offer less than $60. B. Responders often reject offers greater than $0. C. If a large group of participants play the game, then the average share across pairs will always be 50:50. D. Based on experimental evidence, many Responders will accept an offer of $0.

B. Responders often reject offers greater than $0.

Which of the following is a non-excludable public good? A. Library books B. Streetlights C. A sweater D. Netflix

B. Streetlights

The following table gives different technologies that produce 100 meters of cloth... Technology A B C D E # of workers 1 3 2 5 7 Coal Required 7 6 5 1 3 Based on this information, which of the following statements is correct? A. Technology D uses the least total number of workers and tonnes of coal, so it is always cost-minimizing. B. Technology C is more energy-intensive than technology A. C. Technology B is never cost-minimizing. D. Shifting from technology C to technology D is labour saving.

B. Technology C is more energy-intensive than technology A.

Consider a student whose final grade increases with the number of hours spent studying. Her choice is between more free time and higher grades, both of which are 'goods'. Which of the following is not the same as her marginal rate of transformation between the two goods? A. The slope of the student's feasible frontier. B. The number of percentage points the student is willing to give up for another hour of free time. C. The number of percentage points the student would gain by giving up another hour of free time. D. The opportunity cost of free time.

B. The number of percentage points the student is willing to give up for another hour of free time.

Why did the Industrial Revolution begin in Britain?

Britain had a vast supply of mineral resources used to run industrial machines, such as coal.

How do independent farmers or wage workers choose their hours?

By preference and the substitution effect: how much $$ are they willing to give up for more free time?

Which of the following statements is correct regarding disposable income? A. Disposable income is the amount of income that is given away. B. Disposable income is total income from wages, profit, rent, and interest. C. Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions. D. Disposable income is the exact measure of one's wellbeing

C. Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions.

According to Malthus, which of the following are the causes of diminishing average product of labor? A. There is an infinite amount of resources. B. Coordination problems due to a larger labor force. C. More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality. D. Environmental effects of over-cultivation (e.g. increased carbon emission).

C. More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality.

Capitalism is an economic system based on... A. Private property B. Private property and markets C. Private property, markets, and firms D. Markets and state-owned firms

C. Private property, markets, and firms

The process of requiring fewer inputs to produce the same output is referred to as... A. Capitalism B. Specialization C. Technological progress D. History's hockey stick

C. Technological progress

Which of the following statements regarding the Malthusian model are correct when there is a permanent, positive technological shock (such as an improved seed)? A. Income initially rises but then falls back to the subsistence level. B. The population initially rises but then falls to the pre- technological shock level. C. There is an immediate and permanent rise in the average product of labour. D. Both increased population and higher wages in the long run

C. There is an immediate and permanent rise in the average product of labour.

MPL: Marginal product of labor

Change in output/change in labor

Consider a world of just two individuals, Gonzalo and Leila, who each need two goods to survive, apples and wheat. They differ in how productive they are in growing apples and wheat: Production if 100% of time is spent on one good Gonzalo: 2000 apples or 60 tons of wheat Leila: 1000 apples or 50 tons of wheat Based on this information, which of the following statements is correct? A. Leila has an absolute advantage in both crops. B. Gonzalo has a comparative advantage in both crops C. Gonzalo has a comparative advantage in producing wheat. D. Leila has a comparative advantage in producing wheat.

D. Leila has a comparative advantage in producing wheat.

You currently work for 40 hours a week at wage rate of £12 an hour. Your free hours are defined as the number of hours not in work, which in this case is 24 hours × 7 days - 40 hours = 128 hours per week. Suppose that you are happy to keep your total weekly income constant. Then: A. Doubling the wage rate would decrease your working hours to 30 hours per week. B. If your wage rate increases to £16 an hour, then your free time will increase to 130 hours. C. If your pay is cut to £9, in order to keep your income constant, you'll only get 100 hours of free time. D. To have 16 hours of more free time, your wage rate needs to increase by £8.

D. To have 16 hours of more free time, your wage rate needs to increase by £8.

Isocost Line

Graph showing all possible combinations of labor and capital that can be purchased for a given total cost.

GDP per capita

Gross domestic product divided by the number of people in the population.

What distinguishes the invisible hand game from the prisoners' dilemma?

In the invisible hand game if chosen right both parties can benefit.

When does individual self-interest lead to social dilemmas?

Individual self interest leads to social dilemmas in situations like the prisoners dilemma.

Do wage increases lead to longer or shorter work hours?

Not necessarily, it depends on MRS and personal preference.

How can social dilemmas be resolved?

Punishment, incentives

APL: Average Product of Labor

Quantity/Labor

Why was there essentially no increase in GDP per capita from 1000 to 1800?

Technology was not advancing because the industrial revolution didn't occur until 1760.

Substitution Effect

The change in quantity demanded because of the change in the relative price of the product.

What explains the hockey stick in GDP per capita?

The hockey stick shape comes from the advancement in technology overtime increasing efficiency in production.

What is the source of economic growth in capitalism?

The source of economic growth in capitalism stems from .....

How does game theory help us model social interactions?

We can see how our choices are affected by and affect others.

What explains the decline in work hours over the last hundred years?

Work hours have declined due to the increase in efficiency that work can be done because of technology.