Econ 2100 2016 4a

18. At the "free market outcome," there is a Deadweight-Loss equal to A. "area (d)." B. "area (e)." C. "area (h)." D. "areas (d)+(e)."

A. "area (d)."

30. Tony and Dennis are playing a two player simultaneous move game. Tony's two available strategies are "High" and "Low." Tony chooses to play "High" with probability one quarter and "Low" with probability three quarters. It appears as if Tony A. is playing a pure strategy. B. is playing a mixed strategy. C. cannot possibly be choosing a strategy that is a "best reply" to the strategy chosen by Dennis. D. is definitely choosing a strategy that is a "best reply" to the strategy chosen by Dennis.

B. is playing a mixed strategy.

17. The "efficient level of trade" in this market is ____________, while the "free market level of trade" is ____________. A. 0; 9,750 B. 9,750; 15,600 C. 15,600; 9,750 D. 18,075; 0

C. 15,600; 9,750

10. __________________ is a per unit tax imposed on a good that generates a negative externality, which reduces trade to the efficient level (and therefore eliminates Deadweight-Loss). A. A Rawlsian Tax B. A Coasian Tax C. A Pigouvian Tax D. A Nash Tax

C. A Pigouvian Tax

3. Which of the following is NOT one of the "three basic elements of a game"? A. Players. B. Payoffs. C. Rules. D. None of the above answers is correct (since each is one of the basic elements of a game).

C. Rules.

19. If the free market level of trade took place, there would be A. external costs equal to "areas (a)+(b)+(d)+(e)." B. external costs equal to "areas (d)+(e)+(f)+(g)." C. external benefits equal to "areas (a)+(b)." D. external benefits equal to "areas (a)+(b)+(d)+(e)."

C. external benefits equal to "areas (a)+(b)."

2. One way to potentially correct for the "market failure" which would result if a public good were provided in a free market is to: A. clearly and completely define property rights and then allow parties to trade. B. completely ban the production/consumption of the item, so that no trade takes place. C. have the government decide upon the quantity to be provided (presumably, "a best guess of the optimal quantity"), and then tax people to cover the costs of providing the good. D. None of the above answers are correct (this is a "trick question" because there will typically not be a "market failure" if a public good were provided in a free market).

C. have the government decide upon the quantity to be provided (presumably, "a best guess of the optimal quantity"), and then tax people to cover the costs of providing the good.

For questions 16 through 19, consider the market illustrated below: 16. It would appear as if A. this good is clearly a "Collective Good." B. the efficient level of trade of this good is "zero units." C. production/consumption of this good generates a positive externality. D. production/consumption of this good generates a negative externality.

C. production/consumption of this good generates a positive externality.

For Questions 28 and 29, consider the simultaneous move game illustrated below. Arrows have been drawn to illustrate the "best reply" for each player for each strategy which could be chosen by his rival. If the outcome "Top, Left" is realized, each player has a payoff of x > 0. If the outcome "Bottom, Right" is realized, each player has a payoff of y > 0. Player 2 Left Right Player 1 Top x , x Bottom y , y 28. Based upon the arrows illustrating the "best replies," it appears as if A. both players have a dominant strategy. B. neither player has a dominant strategy. C. Player 1 has a dominant strategy but Player 2 does not. D. Player 2 has a dominant strategy but Player 1 does not.

A. both players have a dominant strategy.

For Questions 12 through 14, consider the following simultaneous move game: Player 2 Left Right Top 50 , 45 80 , 35 Player 1 Bottom 30 , 25 70 , 55 12. If Player 1 were to choose "Bottom," then the "best reply" for Player 2 would be to A. choose "Right." B. choose "Left." C. choose "Top." D. also choose "Bottom."

A. choose "Right."

For Questions 12 through 14, consider the following simultaneous move game: Player 2 Left Right Top 50 , 45 80 , 35 Player 1 Bottom 30 , 25 70 , 55 14. This game A. has one Pure Strategy Nash Equilibria ("Top/Left"). B. fits the definition of a "Prisoner's Dilemma." C. does not have any Nash Equilibria (even in "mixed strategies"). D. More than one (perhaps all) of the above answers is correct.

A. has one Pure Strategy Nash Equilibria ("Top/Left").

21. After going trick-or-treating on Halloween George and his younger brother Phil decide to pool all of the candy they collected. Each of them is able to take and consume a piece of candy from the common pool whenever he wants. Consequently, the candy is a common resource that is nonexcludable but rival in consumption. Economic theory would suggest that the candy will be consumed ____________________ it would have been if each child privately owned the candy that he himself had received. A. more quickly than B. less quickly than C. at exactly the same pace as D. None of the above answers are correct (since economic theory would not provide any insights whatsoever on an issue of this nature).

A. more quickly than

15. A game in which each player chooses his own strategy without being able to observe the strategies chosen by other players is a ________________. A. oligopoly game B. Nash game C. sequential move game D. simultaneous move game

D. simultaneous move game

26. For which of the following activities would there likely be a "negative external effect" (i.e., a cost borne by someone not directly engaged in the activity)? A. Last week Todd took his son Sam to the doctor to get a Chicken Pox vaccine. B. Ben was running late for work this afternoon, so he drove 85 miles per hour on the freeway and ran four red lights during his commute. C. Before her 8:00am English class, Sara woke up early and went for a three mile jog. D. None of the above answers is correct.

B. Ben was running late for work this afternoon, so he drove 85 miles per hour on the freeway and ran four red lights during his commute.

32. ________________ is defined as the study of decision making environments in which the outcome for any one decision maker depends upon not only their own actions, but also upon the actions of other decision makers. A. Industrial Organization B. Game Theory C. Economics D. Public Finance

B. Game Theory

4. Which of the following goods would best fit the definition of a "Public Good"? A. An Atlanta Falcons football game at the Georgia Dome. B. National Defense. C. Rail and bus transportation on MARTA. D. Books available to be borrowed from a public library.

B. National Defense.

For Questions 12 through 14, consider the following simultaneous move game: Player 2 Left Right Top 50 , 45 80 , 35 Player 1 Bottom 30 , 25 70 , 55 13. In this game, A. neither Player 1 nor Player 2 has a dominant strategy. B. Player 1 has a dominant strategy, but Player 2 does not. C. Player 2 has a dominant strategy, but Player 1 does not. D. both Player 1 and Player 2 have a dominant strategy

B. Player 1 has a dominant strategy, but Player 2 does not.

22. William is living in the United States illegally and does not pay any Federal Income Taxes. The U.S. Federal Government provides national defense by using some of the money that it receives from this tax. As a result, William is able to enjoy the benefits of national defense provided by the government without making any contribution whatsoever to the costs of its provision. This implies that William is A. a cheapskate. B. a free rider. C. a tragedy of the commons. D. playing a dominated strategy.

B. a free rider.

6. If the production/consumption of a good generates a positive externality, then the "marginal social benefit curve" is visually ____________ the demand curve, and the efficient quantity of trade is ____________ than the free market equilibrium quantity of trade. A. above; less. B. above; greater. C. below; less. D. below; greater.

B. above; greater.

9. If a good is such that it is easy to prevent consumption by those who do not pay for the good, then the good in question is ____________. A. non-excludable B. excludable C. non-rival in consumption D. rival in consumption

B. excludable

8. There would be a positive Deadweight-Loss from "too much trade" if we simply relied upon free markets to provide a A. good which generates a positive externality. B. good which generates a negative externality. C. public good. D. More than one (perhaps all) of the above answers is correct.

B. good which generates a negative externality.

23. The reintroduction of the gray wolf into the wilderness of the Western United States during the last several decades A. led to ranchers in the region realizing an "external benefit" as a result of having additional animals which they could kill and sell for meat. B. illustrates how something similar to the "Coasian Solution" to the problem of externalities can be implemented in order to reduce Deadweight-Loss. C. was undertaken by a cartel of firms, and was therefore inefficient. D. More than one (perhaps all) of the above answers is correct.

B. illustrates how something similar to the "Coasian Solution" to the problem of

27. The Coase Theorem states that A. the socially best level of pollution for society is zero pollution. B. in the presence of an externality, if (i) property rights are clearly and completely defined and (ii) parties can negotiate at low cost, then negotiation between the affected parties will result in an efficient outcome. C. in a market with a negative externality imposing a per unit tax (equal in magnitude to the value of the external cost at the efficient level of trade) will result in an efficient outcome. D. in every simultaneous move game with a finite number of players, each with a finite number of strategies, there exists at least one equilibrium (potentially in mixed strategies).

B. in the presence of an externality, if (i) property rights are clearly and completely defined and (ii) parties can negotiate at low cost, then negotiation between the affected parties will result in an efficient outcome.

For Questions 28 and 29, consider the simultaneous move game illustrated below. Arrows have been drawn to illustrate the "best reply" for each player for each strategy which could be chosen by his rival. If the outcome "Top, Left" is realized, each player has a payoff of x > 0. If the outcome "Bottom, Right" is realized, each player has a payoff of y > 0. Player 2 Left Right Player 1 Top x , x Bottom y , y 29. This game fits the definition of a Prisoners' Dilemma so long as A. the value of "x" is exactly equal to the value of "y." B. the value of "x" is greater than the value of "y." C. the value of "x" is less than the value of "y." D. None of the above answers are correct (since this game is not a Prisoners' Dilemma for any values of "x" and "y").

B. the value of "x" is greater than the value of "y."

20. In a simultaneous move game with two players, it must always be the case that A. at least one player has a dominant strategy. B. there is at least one Nash Equilibrium (potentially in "mixed strategies"). C. the sum of the players payoffs is minimized at an outcome that is a Nash Equilibrium. D. None of the above answers are correct.

B. there is at least one Nash Equilibrium (potentially in "mixed strategies").

11. Public Goods are A. a special type of natural monopoly. B. underprovided in the absence of government intervention in the market. C. overprovided in the absence of government intervention in the market. D. provided efficiently in the absence of government intervention in the market.

B. underprovided in the absence of government intervention in the market.

5. ____________________ refers to a group of firms that attempts to engage in collusion, either openly/explicitly or tacitly/implicitly. A. A Negative Externality B. A Dominant Strategy C. A Free Rider D. A Cartel

D. A Cartel

25. The ____________________ refers to the correct recognition that "if a public good were supplied in the marketplace, the amount provided would be less than the efficient quantity (since many people would attempt to enjoy the benefits of units purchased by others, while not purchasing any units themselves)." A. Collective Good Dilemma B. Prisoners' Dilemma C. Tragedy of the Commons D. Free Rider Problem

D. Free Rider Problem

31. Consider a market in which production/consumption of a good generates a constant valued external cost of $2 per unit. If a per unit tax of $3 was imposed on buyers of this good there would be A. a negative Deadweight Loss. B. zero Deadweight Loss. C. a positive Deadweight Loss from "too much trade" (i.e., the resulting level of trade with the tax in place would be greater than the efficient level of trade). D. a positive Deadweight Loss from "too little trade" (i.e., the resulting level of trade with the tax in place would be less than the efficient level of trade).

D. a positive Deadweight Loss from "too little trade" (i.e., the resulting level of trade with the tax in place would be less than the efficient level of trade).

24. Market Failure refers to A. a situation in which a firm is unable (due to technological constraints) to develop a product which consumers would value. B. the ability of a firm to have some control over the price at which it sells its output (so that it can increase its price without losing all customers). C. the argument that the best way to deal with problems related to externalities is to "clearly and completely define property rights, and then allow affected parties to negotiate with one another." D. a situation in which the "free market outcome" results in either more than or less than the "efficient amount of trade."

D. a situation in which the "free market outcome" results in either more than or less than the "efficient amount of trade."

7. A good that is "non-rival in consumption" and "excludable" is called a ______________. A. public good B. private good C. common good D. collective good

D. collective good