econ exam 3

what is an example of anchoring and adjustment

- mcdonald coffeee vs starbucks coffee

prisoner's dilemma

a game in which each player has a dominant strategy, & when each plays it, the resulting payoffs are smaller than if each has played a dominated strategy q

total economic surplus will be _________ in nations with well-defined property rights than in nations with poorly-defined property rights

higher

does timing matter

sometimes

present-aim

standard of rationality says that people are acting rationally, but that goals are diverse & changing

regression in the mean

if our first measurement of something is far from average, the next measurement is likely to be closer to the average

what does the Weber-French law state

The law states that the change in a stimulus that will be just noticeable is a constant ratio of the original stimulus.

credible promise

a promise to take an action that is in the promiser's best interest to carry out

payoff matrix

a table that describes the payoff in a game for each possible combination of strategies

suppose Danielle receive the highest grade in the class on the first exam in her economics course. Regression to the mean implies that Danielle: a. isn't likely to do as well on the second exam b. is likely to do even better on the second exam c. is likely to get an A in the class d. is unlikely to forget the material she studied for the exam

a. isn't likely to do as well on the second exam

carmen listes to opera music every evening when she gets home from work. Carmen loves listening to opera, besides her neighbor Paul, who can also hear the music, then Carmen's music generates: a. negative externality b. positive externality c. neither b. both

a. negative externality

nash equilibruim

any combination of strategies on which each player's strategiy is his/her best choice, given the other player's strategy

dominated strategy

any other strategy available to a player who has a dominant strategy (bad)

kate & ali can live together in a two-bedroom apartment for $600 per month, or they can rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together & living apart, expect for one problem: Kate hates ali's taste in music. Kate would be willing to pay up to $100 a m month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. which, if any, of the following ways of splitting the total monthly rent would induce they to live together? a. kate pays $150 per month & Ali pays $450 per month b. Kate pays $250 per month & Ali pays $350 per month c. Kate pays $375 per month & Ali pays $150 per month d. there is no way to split the rent to induce them to live together

b. kate pays $250 per month & Ali pays $350 per month

the use of pollution permits by the government to reduce pollution is: a. theoretically interesting, but untried in the U.S b. workable in theory but unworkable in practice c. common in several parts of the U.S d. common in the third world

c. common in several parts of the U.S

Joe is the owner of 7-11, Sam is the owner of the Super America minimart, & together they are the only two gas stations in town. currently, they both charge $3 per gallon, & each earns a profit of $1,000. If Joe cuts his price down to $2.90 & Sam continues to change $3, then joe's profit will be $1,350, & Sam's profit will be $500. Similarly, If Sam cuts his price down to $2.90 & Joe charged $3, Sam's profit is $1350 & Joes profit is $500. if Sam & Joe both cut their price dow not $2.90, then they will each earn a profit of $900. For Joe, keeping his price at $3 per gallon is a: a. revenue-maximizing strategy b. dominant strategy c. dominated strategy d. profit-maximizing strategy

c. dominated strategy

traditional economic models cannot explain why: a. some people buy expensive cars & others buy cheap cars b. people leave tips at restaurants where they regularly dine c. people donate money to charity completely anonymously d. people buy more of a certain good when their income fails

c. people donate money to charity completely anonymously

if either the production or consumption of a good generates an external cost, then the: a. social demand curve will lie to the right of the private demand curve b. social marginal cost curve will lie to the right of the private marginal cost curve c. social marginal cost curve will lie to the left of the private marginal cost curve d. social demand for the good will equal zero

c. social marginal cost curve will lie to the left of the private marginal cost curve

the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus is known as: a. status quo bias b. the representative heuristic c. the Weber-French law d. regression to the mean

c. the Weber-French Law

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, & each of the other nine people of the room would be willing to pay 50 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. is it socially optimal for the cigar smoker to smoke? a. no, because the majority of the people in the room dislike the smell of cigar smoke b. no, recuasse the value to the cigar smoker of smoking is less than the total values to the other people in the room of clean air c. yes, because the value to the cigar smoker of smoking is greater than the total values to the other people in the room of clean air d. yes, because the value to the cigar of smoking is greater than 50 cents.

c. yes, because the value to the cigar smoker of smoking is greater than the total values to the other people in the room of clean air

a prisoner's dilemma illustrates situations in which: a. resources with the lowest opportunity cost should be used first b. everyone does best when each person specializes in the activities in which he/she has a comparative advantage c. efficiency is an important social goal d. there is a conflict between the narrow self-interest of the individuals & the broader interests of the group

d. there is conflict between the narrow self-interest of the individuals & the broader interests of the group

a credible promise is:

in the promiser's best interest to keep

credible threat

is a threat to take an action that is in the threatener's best interest to carry out

when does equilibrium occur

occurs when each player follows his dominant strategy, if it exists

loss aversion

people act more strongly to potential losses than to gains of the same size

game theory

the payoff of each player for each possible combination of strategies

is regretting your impatience an impulse-control problem

yes

dominant strategy

yields a higher payoff no matter what the other player does

what does present-aim basically say

you're doing something strange? then you must have had a preference for doing that specific strange thing