Quiz 9 and 11

Most cartel cease to be effective because

of the incentive to cheat on the cartel agreement

The three elements of a game are

players, strategies, payoffs

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates_________ externality, and burning tires generates________ externality. a) A positive; a negative b) A positive, no c) No; a negative d) A negative; a positive

A (A positive; a negative)

The insight that people can always arrive at efficient solutions to the problems caused by externalities if they can negotiate the purchase and sale of the right to perform activities that cause externalities is called the ________. a) Coase Theorem b) tragedy of the commons c) prisoner's dilemma d) Sherman Act

A (Coase Theorem: The Coase theorem states that if at no cost people can negotiate the purchase and sale of the right to perform activities cause by externalities, they can always arrive at efficient solutions to the problems caused by externalities.)

Which of the following is an example of an activity with an external cost a) Speeding on the interstate b) Keeping your front yard clean c) Having to buy batteries for the new remote that came with a TV d) Raising honeybees where neighbors on all sides grow apples

A (Speeding on the interstate)

Which of the following is NOT an example of an activity with external benefits? a) Installing smoke alarms in your house b) Eating a sandwich in the dining hall c) Having your car's faulty exhaust system repaired d) Planting flowers in your front yard

B (Eating a sandwich in the dining hall)

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of: a) excess supply in the market. b) a good with positive externalities c) the tragedy of the commons. d) an efficient subsidy.

C (the tragedy of the commons)

If coal mining produces a negative externality because it leads to environmental damage, then, at the market equilibrium, the... a) Quantity of coal produced will be less than the socially optimal quantity b) Supply curve will lie to the left of the regulated supply curve c) Price of coal will be higher than the socially optimal price d) Quantity of coal produced will be greater than the socially optimal quantity

D (Quantity of coal produced will be greater than the socially optimal quantity)

An external benefit implies that private markets will provide ________ than the socially optimal quantity, and an external cost implies that private markets will provide ________ than the socially optimal quantity. a) less; less b) more; more c) more; less d) less; more

D (less; more)

A cost an activity that falls on people not engaged in the activity is called a... a) Positive externality b) External benefit c) Prisoner's dilemma d) Negative externality

D (negative externality)

What describes the possible moves in a game in a sequence and list the payoffs to each possible combination of moves

Decision tree

A dominant strategy exists if...

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

In a repeated prisoner's dilemma, players

can sustain cooperation by employing a tit-for-tat strategy

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called...

cartel

Game theory is not useful in understanding perfect completion because in a perfectly competitive market...

no single firm can influence the market price, so firms' decisions are not interdependent