Intro to Microeconomics Final Revised

If the supply of a product is perfectly elastic and demand is downsloping, an excise tax of $2 per unit will increase price by: A. $2 and reduce equilibrium output. B. less than $2. C. $2 and increase equilibrium output. D. more than $2.

A. $2 and reduce equilibrium output.

A dominant strategy occurs when: A. one player has a strategy that yields the highest payoff regardless of the other player's choice. B. both players have a strategy that yields the highest payoff independent of the other's choice. C. both players make the same choice. D. the payoff is the maximum possible combination of payoffs in the game.

A. one player has a strategy that yields the highest payoff regardless of the other player's choice.

Assume the Environmental Protection Agency imposes an excise tax on polluting firms. In which of the following situations would we expect the additional costs to be borne most heavily by consumers? A. Demand is highly elastic and supply is highly inelastic. B. Demand is highly inelastic and supply is highly elastic. C. Demand and supply are both highly inelastic. D. Demand and supply are both highly elastic.

B. Demand is highly inelastic and supply is highly elastic.

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar; nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Refer to the information given above. Which outcome is consistent with the Coase Theorem? A. The cigar smoker will not be able to smoke because there are more non-smokers in the room. B. The cigar smoker will pay each other occupant fifty-five cents, and they will agree to allow smoking. C. The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration. D. The nine non-smoking occupants will each pay the cigar smoker fifty cents and the cigar smoker will not smoke.

B. The cigar smoker will pay each other occupant fifty-five cents, and they will agree to allow smoking.

Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC stick to the agreement, OPEC will earn profits of $200 million and Mexico will earn profits of $100 million. If both Mexico and OPEC cheat, then OPEC will earn $175 million and Mexico will earn $80 million. If only OPEC cheats, then OPEC earns $185 million and Mexico $60 million. If only Mexico cheats, then Mexico earns $110 million and OPEC $150 million. You may find it helpful to fill in the following payoff matrix in order to answer the question below. Refer to the information given above. OPEC has: A. a dominant strategy of not cheating. B. no dominant strategy. C. a dominant strategy of cheating. D. a dominated strategy of cheating.

B. no dominant strategy (No dominant strategy because they are switching their strategy depending on what Mexico does, so it is technically not a Prisoner's Dilemma.

The three elements of a game are: A. the firm, the consumers, and the profit. B. the players, strategies, and the payoffs. C. the model, the graph, and the costs. D. the costs, the revenue, and the profit.

B. the players, strategies, and the payoffs.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. Refer to the information given above. The aquifer beneath Dry Gulch is: A. an external cost. B. private property. C. a commons. D. an external benefit.

C. a commons.

If the external benefit of an activity is added to the private benefits, then the A. demand curve shifts left. B. quantity demanded rises. C. demand curve shifts right. D. supply curve shifts right.

C. demand curve shifts right.

A dilemma in the Prisoner's Dilemma comes from the fact that: A. the outcome is purely random. B. no strategy is dominant. C. if both players play the dominant strategy they each earn a smaller payoff than had they played the dominated strategy. D. it was originally devised to explain the behavior of prisoners.

C. if both players play the dominant strategy they each earn a smaller payoff than had they played the dominated strategy.

Your state department of transportation is considering installing toll booths and gates on one of the freeways that runs through an underpopulated part of the state. If this is adopted, a good that is currently a(n) A. public good will become a private good. B. nonrival good will become a rival good. C. rival good will become an excludable good. D. nonexcludable good will become an excludable good.

C. rival good will become an excludable good.

Aaron's neighbor Cliff keeps his front yard well-manicured and plants beautiful flowers which Aaron enjoys. If local law prevents Cliff from fencing his yard, the beauty of Cliff's front yard is A. nonrival. B. a private good. C. nonexcludable. D. both nonrival and nonexcludable.

D. both nonrival and nonexcludable.

The optimal quantity of a negative externality is zero if... A. it kills many people. B. it is costly to negotiate a Coasean solution. C. people vote against it in a democratic election. D. the marginal cost of reducing it is zero

D. the marginal cost of reducing it is zero

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that... A. the private supply curve for the activity is to the left of the socially optimal supply curve. B. the private demand curve for the activity is below the socially optimal demand. C. there is a positive externality associated with this good. D. there is a negative externality associated with this good.

D. there is a negative externality associated with this good.

Rival and nonexcludable goods are...

commons goods.

The equality-efficiency trade-off suggests that...

economic growth is the best means of reducing poverty.

A _____________ good is one that can be used or consumed by one person without reducing the amount left for others. In other words, a _________ good can be used again and again at almost no additional cost. Examples of _____________ goods are designs, movies, television, fireworks, algorithms and patents.

nonrival

Excludable and rival goods are...

private goods.

A _______ good is a type of good that may only be possessed or consumed by a single user. Using a ______ good prevents its use by other possible users. _____ goods can be durable, where users may use them one at a time, or non-durable, where consumption destroys the good, allowing only one user to enjoy it.

rival