Macro Chap 1-5 exam
dominant strategy
Definition- a best response to all possible strategies of the other player
d
Brian likes going to the cinema more than watching football. Anna, on the other hand prefers watching football to going to the cinema. Either way, they both prefer to be together rather than spending an afternoon apart. The following table represents the happiness levels ( payoffs) of Anna and Brian, depending on their choice of activity ( the first number is Brian's happiness level while the second number is Anna's) Based on the information above, we can conclude that A: The dominate strategy for both players is football B: There is no dominate strategy equilibrium C: The dominate strategy equilibrium yields the highest possible happiness for both D: Neither player would want to deviate from the dominant strategy equilibrium
b d
Consider now two cases of further changes in Alexei's study environment Case A- He suddenly finds himself needing to spend 4 hours a day caring for a family member. (You may assume that his marginal product of labor is unaffected for the hours that he studies) Case B- For health reasons his marginal product of labor for all hours is reduced by 10% A: For case A, Alexei's production function shifts to the right B: For case A, Alexei's feasible frontier shifts to the left C: For case B, Alexei's production function shifts down in a parallel manner D: For case B, Alexei's feasible frontier rotates downwards, pivoted at the intercept with the horizontal axis
d
Currently you work for 40 hours per week at the wage of $20 man hour. Your free hours are defined as the number of hours not spent in work per week, which this case is 24 hours x 7 days a week - 40 hours = 128 hours per week. Suppose now that your wage rate has Increased by 25%. If your are happy to keep your total weekly income constant then A: Your total number of working hours per week will fall by 25% B: Your total number of working hours will be 30 hours C: Your total number of free hours per week will increase by 25% D: Your total number of free hours will increase by 6.25%
simultaneous game
Definition (B)- A game in which players choose strategies simultaneously, for example the prisoners' dilemma.
consumption good
Definition (B)- A good or service that satisfies the needs of consumers over a short period.
scarcity
Definition (B)- A good that is valued, and for which there is an opportunity cost of acquiring more.
economic rent
Definition (B)- 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).
deomcracy
Definition (B)- A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote; and in which the government leaves office if it loses.
globalization
Definition (B)- A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance, and to a lesser extent, labour. The term is sometimes applied more broadly to include ideas, culture, and even the spread of epidemic diseases.
diminishing marginal product
Definition (B)- A property of some production functions according to which each additional unit of input results in a smaller increment in total output than did the previous unit.
ceteris paribus
Definition (B)- Economists often simplify analysis by setting aside things that are thought to be of less importance to the question of interest. The literal meaning of the expression is 'other things equal'. In an economic model it means an analysis 'holds other things constant'.
innovation rent
Definition (B)- Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy.
marginal rate of transformation
Definition (B)- 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 substitution
Definition (B)- The trade-off that a person is willing to make between two goods. At any point, this is the slope of the indifference curve.
equilibrium
Definition- A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model's description of the situation.
entreprenuer
Definition- A person who creates or is an early adopter of new technologies, organizational forms, and other opportunities.
disposable income
Definition- a country' total income after taxes and government transfer are taken out Total income- taxes+ government transfers
prisoners dilemma
Definition- a game with a dominant strategy equilibrium in which playing the dominant strategy yields lower individuals and total payoffs compared to other strategies
gdp
Definition- a measure of total income and output of the economy in a given period
nash equilibrium
Definition- a set of strategies (one per player) such that each players strategy is the best response to the strategies chosen by everyone else
social dilemma
Definition- a situation in which actions taken independently by self-interest individuals result in socially suboptimal outcomes
social interaction
Definition- a situation involving more than one persons/party where one's actions affect both their own and other people's outcomes
strategic interaction
Definition- a social interaction where people are aware of the ways that their actions affect others
industrial revolution
Definition- a wave of technological advances starting in Britain in the 18th century, which transformed an agrarian and craft-based economy into a commercial and industrial economy
markets
Definition- a way for people to exchange products and services foe their mutual benefit (voluntary)
feasible strategies
Definition- actions each player can take
strategy
Definition- actions that people can take when engaging in a social interaction
opportunity cost
Definition- an action is the net benefit of the next best alternative
pareto efficent
Definition- an allocation if nobody can be better off without making someone worse off
capitalism
Definition- an economic system where the main institutions are private property, markets, and firms
dominant strategy equilibrium
Definition- an outcome of a game in which everyone plays their dominant strategy
institutions
Definition- are the laws and social customs governing the production and distribution of goods and services
average product
Definition- average output per unit of input
firms
Definition- business organization that uses inputs to produce outputs, and set prices to at least cover production costs
marginal product
Definition- change in output per unit change in input evaluated at a given point holding other inputs constant
isocost lines
Definition- combinations of inputs that give the same cost (slope=relative price of inputs)
tragedy of the commons
Definition- common property or common resource are often over exploited
social norms
Definition- common understanding of how to act in situations when one's actions affect others
incentives
Definition- economic rewards or punishments which influence the benefits and costs of alternative courses of action
impact on technology
Definition- firms competing in markets had strong incentives to adopt and develop new things
production function
Definition- gives maximum function outputs for a given set of inputs
relative price
Definition- help us compare alternatives
marginal rate of transformation
Definition- is the slope of the feasible frontier and represents the tradeoffs that an individual can face
gini coefficent
Definition- measure of inequality approximated by deviation of the lorenz curve from the perfect equality line
game theory
Definition- model social interactions and explains social dilemmas
free riding
Definition- one person/party bears all the costs while everyone enjoys the benefits
allocation
Definition- outcome of an economic interaction
payoffs
Definition- outcomes for every possible combination of actions
malthus model
Definition- permanent technological change enabled economies to escape economical stagnation
technology
Definition- process that uses inputs to produce an output
lorenz curve
Definition- show the extent of inequality and allows comparison of distribution
production function
Definition- shows how inputs translate into outputs holding other factors constant
feasible frontier
Definition- shows the maximum output that can be achieved with a given amount of output
ceteris paribus
Definition- simplification that involves holding other things in/outside of the model constant
equilibrium of a model
Definition- situation that is self-perpetuating something of interest does not change unless and external force is introduced that alters the model decription of the situation
best response
Definition- strategy that yields the highest payoff given the other players strategy
economic rent
Definition- the benefit received from a choice taking into account te next best alternative
innovation rent
Definition- the change in profit is equal to the fall in costs associated with the adopting of new technology
specialization
Definition- the growth of firms and the expansion of market linking the entire world allowed historically unprecedented ___________in tasks and production
private property
Definition- the ownership rights over processions
creative destruction
Definition- the process by which old technologies and the firms do not adapt are swept away by the new because they cannot compete
political system
Definition- this determines how governments will be selected, and how those governments will make and implement decisions
information
Definition- what each player knows when choosing their action
players
Definition- who is involved in the interaction game
capital goods
Definition-the non labor inputs used in production
b c
Dimitrios and Ameera work for an international investment bank as foreign exchange traders. They're being questioned by the police on their suspected involvement in a series of market manipulation trades. The table below shows the cost of each strategy (In terms of the length in years of jail sentences they will receive), depending on weather they accuse each other or deny the crime. The first number is the payoff to Dimitrios, while the second number is the payoff to Ameera ( The negative numbers signify losses). Assume that the game is a simultaneous one-shot game. Based on the information, we can conclude that A: Both traders will hold out and deny their involvement B: Both traders will accuse each other, even though they will end up being in jail for eight years C: Ameera will accuse, whatever she expects Dimitrios to do D: There is a small possibility that both traders will get away with two years each
d
Figure 2.1 shows an index of average real wages of skilled workers in London between 1264 and 2001. What can we conclude from this graph A: Skilled workers were paid about $100 in 1408 B: The average wage in 1850 was about the same as that in 1408 in nominal terms (pounds) C: The average real wage was more or less constant between 1264 and 1850 D: The average real wage increased by around 600% between 1850 and 2001
b
Figure 2.3 shows different technologies for producing 100 meters of cloth from the graph what can we conclude A:Technology D is more energy-intensive than technology C B: Technology B dominates technology D C: Technology A is the cost-minimizing technology at all prices of coal and wages D: Technology C can sometimes be a cheaper technology than A
a
Figure 3.10a shows Alexei's feasible frontier and his indifference curves for final grade and hours of free time a day suppose that all students have the same feasible frontier, but their indifference curve may differ in shape depending on their preferences use the diagram to decide which of the following is (are) correct A: Alexei will choose a point where the marginal rate of substitution equals the original rate of transformation B: C is below the feasible frontier but D is on the feasible frontier. Therefore, Alexei may select point D as his optimal choice C: All students with downward-sloping indifference curves, whatever the slope, would choose point E D: At E, Alexei has the highest ratio of final grade per hour of free time per day
a b
Figure 3.15 depicts your budget constraint when the hourly wage is $15 which of the following is (are) true A: The slope of the budget constraint is the negative of the wage rate (-15) B: The budget constraint is a feasible frontier with a constant marginal rate of transformation C: An increase in the wage rate would cause a parallel upward shift in the budget constraint D: A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300
b c d
Figure 3.20 depicts a model of labor supply and consumption for the US in 1900 and 2013 the wage rate is shown to have increased between the two years which of the following are true A: The substitution effect corresponds to the steepening of the budget constraint. This is represented by the move from point A to point D B: The income effect corresponds with the parallel shift in the budget constraint outwards due to the higher income. This is represented by the move from point A to point C C: As shown, the income effect dominates the substitution effect, leading to a reduction in the hours of work D: If Americans had had different preferences, they might have responded to this wage rise by reducing their free time
a
Figure 3.5 shows Alexei's production function, with the final grade (the output) related to the number of hours spent studying (the input) Which of the following is true A: The marginal product and average product are approximately the same for the initial hour B: The marginal product and average product are both constant at beyond 15 hours C: The horizontal production function beyond 15 hours means that studying for more than 15 hours is detrimental to Alexei's performance D: The marginal product and the average product at 20 hours are both 4.5
b
Figure 3.6 shows Alexei's indifference curves for free time and final grade. Which of the following is true A: Alexei prefers C to B at C he has more free time B: Alexei is indifferent between the grade of 84 with 15 hours of free time, and the grade of 50 with 20 hours of free time C: Alexei prefers D to C, because at D he has the same grade and more free time D: At G, Alexei is willing to give up 2 hours of free time for 10 extra grade points
output divided by number of workers
How do you calculate average product of labor
economic rent
If the benefit from an action exceeds the economic costs you receive
a
Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ration scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves? (linear first then ratio) A: An upward-sloping curve with increasing slope (called convex shape); An upward-sloping straight line B: An upward-sloping straight line; A straight horizontal line C: An upward-sloping straight line; An upward-sloping curve with decreasing slope (called convex shape) D: An upward-sloping convex curve; An upward-sloping convex curve
d
In a simultaneous one-shot game A: A player observes what others do before deciding how to act B: A player decides his or her action, taking into account what other players may do after knowing his or her move C: Players coordinate to find the actions that lead to the optimal outcome for society D: A player chooses an action taking into account the possible actions that other players can take
c
Look again at Figure 1.10 which shows the graph of GDP per capita for West and East Germany, Japan, and Spain between 1950 and 1990. Which of the following statement is correct? A: Having a much lower starting point in 1950 was the main reason for East Germany's poor performance compared to West Germany B: The fact that Japan and West Germany have the highest GDP per capita in 1990 implies that they found the optimal economic system C: Spain was able to grow at a high growth rate then Germany between 1950 and 1990 D: The difference in East and West Germany's performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation
a
Look again at Figure 2.1 and Figure 2.19 showing graphs of real wages in England between 1300 and 2000. You are also told the following facts 1. During the bubonic plague of 1348 and 1351, between one-quarter and one-third of Europe's population died 2. In the seventeenth and eighteenth centuries, the wages of unskilled workers relative to the income of land owners were only one-fifth of what they had been in the sixteenth century What can we conclude about this information A: According to the Malthusian model, the fall in the population due to the bubonic plague would have led to an increase in the average productivity of workers, causing the observed rise in the real wage post-plague B: The doubling and halving of the real wage index ver 250 years from around 1350 is contrary to the Malthusian model C: The fall in the unskilled workers' share of total output in the seventeenth and eighteenth centuries was due to the fall in their average product of labor D: The fall in relative wages of the unskilled workers in the seventeenth and eighteenth centuries was one of the factors that led to the eventual shooting up of the real wage in the nineteenth century , seen in the graph
d
Look again at Figure 2.20, which plots real wages against population in England from the 1280s to the 1860s. According to Malthus, with diminishing average product of labor in production and population growth in response to increases in real wages, an increase in productivity will result in a larger population but not higher real wages in the long run. Based on the information above, which of the following statements is correct A: Between the 1800s, population grows as real wages rise. This is entirely in line with Malthus's description of the economy's growth B: There is a clear evidence of a persistent and continous Malthusian trap between the 1280s and the 1800s C: The Malthusian trap seems to occur in a cycle of 60 years D: The Malthusian model does not take into account the possibility of the persistent positive technology shock that may offset the diminishing average product of labor
b
Look again at figure 1.11 which of these conclusions is suggested by the graph A: The communist party rule in the former Soviet Union before 1990 was a complete failure B: The contrasting performance of Botswana and Nigeria illustrates that rich natural resources alone do not guarantee higher economic growth, but the higher quality institutions (government, markets and firms) may also be necessary C: The impressive performance of South Korea's economy implies that other countries should copy their economic system D: The evidence from the Russian Federation and the former Soviet Union after 1990 shows that the replacement of central planning by capitalism led to immediate economic growth.
b d
Look again at figure 2.14b when depicts the production function of grain for farmers under average growing conditions with the current available technology we can ascertain that A: In a year with exceptionally good weather conditions, the production function curve will be higher and parallel to the curve above B: A discovery of new high-yielding crop seeds would tilt the production function curve higher, pivot anti-clockwise at the origin C: In a year of bad drought, the production curve can slope downwards for a large number of farmers D: If there is an upper limit on the amount of grain that can be produced, then the curve will end up horizontal for large numbers of farmers
b d
Look at Figure 3.5 which shows Alexei's production function: how the final grade (the output) depends on the final grade of hours spent studying (the input). Free time per day is given by 24 hours minus the hours of study per day consider Alexei's feasible set of combinations of final grade and hours of free time per day what can we conclude A: To find the feasible set one needs to know the number of hours that Alexei sleeps per day B: The feasible frontier is a mirror imagine of the production function above C: The feasible frontier is horizontal between 0 and 10 of free time per day D: The marginal product of labor at 10 hours of study equals the marginal rate of transformation at 14 hours of free time
d
Look at figure 2.12 which depicts isocost lines for the 1600s and the 1700s in Britain which of the following is true A: The flatter isocost lineHJ for 1600 Britain indicates higher wages relative to the price of coal B: The increase in wages relative to the cost of energy in the 1700s is represented by the outward shift of the isocost line from HJ to the parallel isocost line going through A C: Had the wage level fallen together with the falling energy costs (due for example to cheaper transportation), then 1700 Britain would definitely have stayed with technology B D: The comparison between isocost line FG and the parallel isocost going through B suggests that an innovation rent was earned in 1700s Britain whens firm moved from technology B to A
c
Look at figure 3.1 which depicts the annual number of hours worked against GDP per capita in the US, France, Netherlands, between 1870 and 2000. Which of the following is true? A: An icrease in GDP per capita causes a reduction in the number of hours worked B: The GDP per capita in the Netherlands is lower than that in the US because Dutch people work fewer hours C: Between 1870 and 2000, French people have managed to increase their GDP per capita more than ten-fold while more halving the number of hours worked D: On the basis of the evidence in the graph, one ay French people will be able to produce a GDP per capita of over $30,000 with less than 1,000 hours of work.
b
Look at the three isocost lines in Figure 2.8 based on the information what can we conclude A: When the wage is $10 and the price of coal is $5, the combination of inputs at the point N is more costly than the inputs at point B B: Isocost MN and FG represent the same price ration (wage/price of coal) but different total costs of production C: Isocost HJ represents a higher (wage/ price of coal) ratio than isocost FG D: Isocost HJ represents all points that can produce 100 meters of cloth at a particular price ratio
a d
Select all correct answers A: An economic system is a way of organizing the production and distribution of goods and services in an entire economy B: The knowledge you attain from the CORE program is considered private property C: Forced labor where the worker receive some daily allowance is an example of a market D: Employee-owned cooperatives are not firms
c
The GDP per capita of Greece was $22,494 in 2012 and $21, 966 in 2013. Based on these figures, the growth rate of GDP between 2012 and 2013 (for two decimal places) was A: -2.40% B: 2.35% C: -2.35% D: -.24%
a
The table shows the payoff matrix for a simultaneous one-shot game in which Anil and Bala choose their crops we can conclude that A: There are two nash equilibria (cassava , rice) and (rice, cassava) B: The choice of cassava is a dominant strategy for Anil C: The choice of rice is a dominant strategy for Bala D: There are two dominant strategy equilbria (cassava, rice) and (rice, cassava)
subsistence level
What are living standards forced down to
diminishing average product, rise population in response to increases in wages, an absense of improvements in technology
What are the 3 conditions are required to stay in the Malthusian trap
clear, predicts accurate, improves communication, useful
What are the components of a good model
ceteris paribus, incentives, relative price, economic rent
What are the key concepts of a model
substantive, procedural
What are the two types of fairness
d
What does UK GDP per capita measure? A: the total output of London's economy B: the average disposal income of a UK resident C: the total output of Uk residents, divided by the number of the residents D: the total output of the UK's economy, divided by the country's population
players, feasible strategies, information, payoffs
What does a game include
capital goods
What is an important type of private property
growth rate
What is calculated by the percentage in real GDP from one year t- 1 and it is denoted by gt
b d
What is the marginal rate of substitution (MRS) A: The ratio of the amounts of the two goods at a point on the indifferent curve B: The amount of one good that the consumer is willing to trade for one unit of the other C: The change in the consumer's utility when one good is substituted for another D: The slope of the indifference curve
b c d
Which of the following are examples of markets? A: waretime food rationing B: auction websites such as ebay C: touts selling tickets outside concert halls D: sale of illegal firearms
a c
Which of the following are examples of private property A: computers belong to your college B: a farmer's land in the Soviet Russia C: shares in a company D: a worker's skill
c
Which of the following is an economic rent A: The amount you pay your landlord for the use of an apartment B: The amount you pay to hire a car for a weekend C: The extra profit that a successful innovator makes on bringing a new product to the market before it's competitors D: The extra profit a firm makes when it doubles in size and there are no changes to cost or the price for each unit of its output.
a
Which of the following statements about the outcome of an economic interaction is correct A: If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off B: All participants are happy with what they get if the allocation is Pareto efficient C: There cannot be more than one Pareto-efficient outcome D: According to the Pareto criterion, a Pareto-efficient outcome is always better than an inefficient one
a d
Which of the following statements regarding Adam Smith is correct? A:Adam Smith believed in the role of the government to improve societal welfare B: Adam Smith believed that all the markets were characterized by perfect competition C: Adam Smith advocated that economic agents were guided entirely in self-interest D: Adam Smith claimed that coordination among larger numbers 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
a b d
Which of the following statements regarding nash equilibrium are correct? A: No player has the incentive to deviate from nash equilibrium B: In a nash equilibrium, all players choose their best response strategy given the other players' strategies C: A nash equilibrium is a dominant strategy equilibirum D: a dominant strategy equilibrium is a nash equilibrium
a b d
Which of the following variables have followed the so-called "hockey-stick" trajectory- that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate? A: GDP per capita B: labor productivity C: inequality D: atmospheric CO2
c
You are a taxi driver in Melbourne who earns A$50 for a day's work. You have been offered a one-day ticket to the Australian Open for A$40. As a tennis fan, you value the experience at A$10, with this information what can we say A: The opportunity cost of the day at the Open is A$40 B: The economic cost of a day at the Open is A$40 C: The economic rent of the day at the Open is A$10 D: You would have paid up to A$100 for the ticket
doubling time
what variable is calculated by 70 divided by % of growth rate