C211 Pre-assessment #3

A painter spends $200 on paint. He then bills the homeowner $1,000 to cover his time and his expenses. What is the amount of these transactions that is added to gross domestic product (GDP)?

$1,000

economic welfare is generally measured by (I) profit, (ii) total surplus (iii) the price consumers pay for the product

(ii) only

What is the aggregation of importing and exporting that leads to the country-level trade surplus or deficit?

Balance of Trade

What is a likely outcome of the standard prisoner's dilemma game?

Both prisoners confess

What is a core proposition underpinning an institutional-based view of global business?

Bounded rationality

What is one way the Federal Reserve influences the reserve ratio?

By altering reserve requirements

Which legal system uses comprehensive lists of rules and written codes?

Civil law

What is the financial environment in which exchange rates and payments for goods and services are conducted.

Commodity exchange

What is the easiest method non-financial companies use to handle currency fluctuations?

Commodity trading

How does the prisoner's dilemma help in understanding company behavior in an oligopoly?

Companies lack strategic thinking

Which strategy minimizes the risk of unanticipated changes in future exchange rates?

Currency swap

What happens to demand quantity for normal goods as percentage change in income increases?

Demand increases

In which type of political system do citizens elect representatives to govern the country on their behalf?

Democracy

What is a cost of foreign direct investment?

Developing countries may be exploited by multinational enterprises (MNE)

What is the producer's demand curve if the producer sells a differentiated product?

Downward sloping

What happens to a country's real exchange rate and nominal interest rate as the price level increases, assuming all other factors are unchanged?

Exchange rates depreciate, interest rates increase

What can be assumed that the consumer will buy if it is observes that the consumer's budget constraint has shifted inward?

Fewer normal goods and more inferior goods

What advantage comes with not sharing benefits with late entrants?

First-mover advantage

Which condition applies when a competitive firm decides to temporarily shut down?

Fixed costs are above variable costs

What do economists use to represent a consumer's preferences?

Indifferent curves

A company is looking for a location with an abundance of ground-breaking individuals, firms, and universities. Which type of strategic goal is this company demonstrating?

Innovation-seeking

What are the rules, enforcement mechanisms, and organizations that support market transactions?

Institutions

Which type of managerial capability is both challenging and difficult to imitate?

Intangible capability

What is the effect of an increase in the money supply in the short run?

Interest rates decrease and aggregate demand for goods and services increase

Which statement describes a competitive firm's demand curve?

It is more elastic than a monopoly's demand curve

Which entry mode is a non-equity arrangement for a company contemplating entry into a foreign market?

Licensing

Which fiscal policy would be most effective at raising consumer spending and expanding aggregate demand?

Lowering target interest rates

What is a characteristic of monopolistic competition?

Many firms and differentiated products

What is the relationship between total and marginal cost?

Marginal cost is the change in total cost divided by the change in quantity

What are the two popular types of economies?

Mixed economies Market economies

A U.S. state purchases a fleet of new highway patrol vehicles manufactured in Japan. Which two statements correctly describe how the components of U.S. gross domestic product (GDP) are affected?

Net exports decrease Government expenditures increase

What are two supportive pillars for an informal institution?

Normative and cognitive

for a profit-maximizing monopolist

P>MR=MC

A farmer sells wheat in a perfectly competitive market. Which action should the farmer take to maximize profits?

Produce the quantity where the price equals the farmer's marginal cost

What are the legal privileges associated with the use of economic property to obtain income and other benefits from its use?

Property rights

Economic gains come from international trade because one country's exported goods, services, or other items are unique, valuable, and difficult to duplicate to the importing country. Which view does this statement portray?

Resource-based view

What size commitment is required for a non-equity mode of entry into a foreign market?

Small commitment

What do the positive or negative numbers of cross-price elasticity of demand represent?

Substitutes or complements

What may precious, rare, and hard-to-duplicate resources and capabilities lead to for a firm?

Sustained comparative advantage

What effect does implementing a new tariff have on the government that implements it?

Tax revenue increases

How is consumer surplus represented on a graph?

The area below the demand curve and above price

Which two statements define producer surplus?

The area below the price and above the supply curve on a graph

Which theory of international trade states that poor countries often experience faster rates of economic growth compared to wealthy countries?

The catch-up effect

What is the economic profit of a competitive firm?

The difference between total revenue and total cost

What will happen to the market price and quantity in the short run if there is an increase in market demand in a perfectly competitive market?

The equilibrium price will remain unchanged, and the equilibrium quantity will increase

Which view claims that the phenomenon of globalization was initially driven by the desire of Western economies to exploit their power through multinational enterprises?

The new force view

A nation ends a tariff on bananas, which is an imported product. What will be the effect on banana prices within that nation?

The price will match the global market price

What will happen to the output of a particular factory when there are negative externalities?

The quantity produced by that factory will be greater than the optimal quantity

In addition to encouraging efficiency, why might a government intervene in a market?

To increase profits

What is the purpose of having property rights and intellectual property rights?

To legally protect the use to tangible and intangible property and allow its lawful owner to derive income and other benefits from it

What is the key role of an institution, according to the institution-based view?

To reduce uncertainty

What is the point at which a monopoly maximizes profit?

Where marginal cost equals marginal revenue

in the prisoners delimma game with bonnie and clyde as the players, the likely outcome is

a bad outcome for both players

what is the shape of the monopolist marginal revenue curve?

a downward sloping line that lies below the demand curve

when an oligopoly marker reaches a Nash Equilibrium

a firm will have chosen its best strategy given the strategies chosen by other firms in the market

because a monopolist must lower its price in order to sell another unit of output

a marginal revenue is less than price

an equilibrium occurs in a game when

all players follow a strategy that they have no incentive to change

if duopolist individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will

be greater than the monopoly quantity

the likely outcome of the standard prisoners dilemma game is that

both prisoners confess

as a group, oligopolists would always earn the highest profit if they would

charge the same price that a monopolist would charge if the marker were a monopoly

when strategic interactions are important to pricing and production decisions, a typical firm will

consider how competing firms might respond to its action

a distinguishing feature of an oligopolistic industry is the tension between

cooperation and self interest

the economic inefficiency of a monopolist can be measured by the

deadweight loss

when a monopolist increases the amount of output that it produces and sells, the price of its output

decreases

the supply curve for the monoplolist

does not exist

an agreement between two duopolist to function as a monopolist usually breaks down because

each duopolist wants a larger share of the market in order to capture more profit

a monopoly market

generally fails to maximize total economic well being

Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $15,000 and the other will earn $7,000. To earn the highest profit, Martha

has no dominant stragety

in general the game theory is the study of

how people behave in strategic situations

a dominant strategy is one that

is best for the player, regardless of what strategies other players follow

in order to sell more of its product, a monopolist must

lower its price

when a firms average total cost curve continually declines, the firm is a

natural monopoly

game theory is important for the understanding of

oligopolies

which of the following is not a characteristic of a monopoly

one buyer

when a monopolist increase the number of units it sells, there are two effects on the revenue, they are the

output effect and the price effect

for a monopolist, when the output effect is greater than the price effect, marginal revenue is

positive

a monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost

economist assume that monopolist behave as

profit maximizer

the deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly

quanity is lower than the socially optimal quantity