Econ Test 3

What is the difference between a pure strategy and a mixed​ strategy?

A pure strategy involves choosing one​ action, while a mixed strategy involves choosing different actions randomly according to preassigned probabilities.

All of the following statements describe a duopoly with homogeneous​ products, cost​ structures, and effort except​: A. The market demand curve is elastic. Your answer is correct.B. If prices are​ equal, each firm will have half of the demand. C. The residual demand curve is less than the market demand curve. D. ​Price-cutting will drive prices down to marginal cost.

A. the market demand curve is elastic

Which of the following is not an example of monopolistic​ competition? A. Toothpaste producers. B. Gift shop. C. Fashion retailers. D. Pharmaceuticals.

D. Pharmaceuticals

Which of the following factors will not lead to zero economic profit in​ long-run equilibrium in a monopolistically competitive​ market? A. Entry of many new firms in the​ long-run. B. Advertising and innovating the product. C. Establishing the brand name of the product. D. None of the above factors.

D. none of the above factors

As we​ saw, the tax incedence resulting from the previous questions were identical. Why do consumers actually pay more of the​ tax, regardless of on which side the tax is legally​ imposed?

Demand is more inelastic than supply in the marijuana market

Which of the following is not an​ externality?

Jordan has lung cancer from smoking cigarettes.

Consider the market for craft beer. Suppose the government institutes a tax on sellers of​ $1 per craft beer. How would this impact the​ market?

Supply would shift up by​ $1

What elements must be known to set up a simultaneous move​ game?

The​ players, the​ strategies, the payoffs.

A​ neighborhood's members-only swimming pool is a

club good

Radio spectrum is a

common pool resource

The tragedy of the commons results when​ ___________.

common pool resources are overused.

every nash equilibrium is not a ________ equilibrium

dominant strategy

Suppose there are four firms in a market and each of them sells differentiated products. If the four firms engage in a price​ war, then​ ____________.

each​ firm's profit will be less than with collusion but not zero.

In the model of an oligopoly with identical​ (homogeneous) products, the price is likely to be​ ___________.

equal to marginal cost

firms earn economic profits in the long run perfect competition: ______ monopoly: ______ monopolistic competition: _____

false; true; false

In competitive​ markets, tax​ incidence, as well as the​ equilibrium, is independent of whether the tax is imposed on consumers or sellers​ because:

if it is imposed on the​ seller, the seller will raise the price and pass it to the consumer.

The deadweight loss ______ the foregone benefit to society of the externality.

is equal to

Negative externalities impose an additional cost​ that:

is not explicitly recognized by the buyers and sellers in the market.

Public goods are _____ in rivalry and _____ in excludability.

low, low

A product with no close substitutes.

monopoly

Lauren mentions that it is extremely windy today. This is an example of:

not an externality

Firm sets market price depending on other​ firm's market price.

oligopoly

What must​ you, as the​ consultant, construct for Chevron before you can determine if there is a dominant strategy​ equilibrium?

payoff matrix

Firms with zero ability to affect price.

perfect competition

The Coase Theorem states that​ ____________.

private bargaining will result in an efficient allocation of resources.

Health insurance is a

private good

The demand curve will ________ and its slope will be ________ if a firm exits the market.

shift right; steeper

When you want to encourage an​ activity, you should ______it

subsidize

For economic profit to exist within a duopoly with homogeneous​ goods:

the firms would have to agree to a set price.

Tax incidence refers to​ ____________.

who bears the burden of a tax.

Firm A uses production technology that affects the environment. Which of the following are​ command-and-control policies used by the government to regulate firm​ A?

-The government makes it compulsory for firm A to use environment friendly technology. -Firm A is not allowed by the government to produce more than 100 units if it does not use​ environment-friendly technology.

​Therefore, the​ market-based approach to deal with the externality is to use a _______ causing _______ in the quantity produced by the companies towards the socially optimal level.

-corrective tax -a reduction

A corrective subsidy would be used when marginal social benefit is _____ than market demand. This causes the _____ to internalize the externality.

-greater -consumer

How does a​ command-and-control policy differ from a​ market-based policy? With a​ command-and-control policy, _____________________________ while with a​ market- based​ policy, _____________________________.

-the government directly regulates the allocation of resources -the government provides incentives for private organizations to internalize the externality

The Coase Theorem will will breakdown when​ ____________.

-there are a large number of agents -transaction costs become high -when property rights are not clearly defined

All of the following statements about market structures are true except​: A. Monopolistic competitors practice marginal cost pricing. Your answer is correct.B. Oligopolists often practices game theory. C. Perfect competitors can have​ short-run economic profits. D. ​Monopolists' sales revenues are constrained by market demand.

A. Monopolistic competitors practice marginal cost pricing.

All of the following statements describe a duopoly with differentiated products except​: A. When one company reduces prices or makes its product more​ attractive, it reduces the demand for the product of the other firms in the market. B. No company is able to capture the entire market. C. When consumers view the products as more​ substitutable, prices are higher. D. Firms respond to a competitor before the competitor is actually competing.

C. When consumers view the products as more​ substitutable, prices are higher.

Which of the following is not a characteristic of monopolistic​ competition? ​(Check all that apply.​) A. Sellers are​ price-makers. B. Slope of the demand curve is negative. C. Entry and exit is not easy. Your answer is correct.D. Products are perfect substitutes.

C. entry and exit is not easy and D. products are perfect substitutes

For a market to be characterized as an oligopoly​, there must be​ __________. A. few sellers. B. homogeneous or differentiated products. C. a possibility of positive economic profits in the long run. D. all of the above

D. all of the above

Consider the market for packs of cigarettes. Suppose the government institutes a tax on buyers of​ $3 per pack of cigarettes. How would this impact the​ market?

Demand would shift up by​ $3

Suppose the government institutes a tax on consumers of​ $5 per gram of marijuana. How would this impact the​ market?

Demand would shift up by​ $5

A tax that creates deadweight loss in a market is​ a...

Distortionary Tax

What approach would be the least effective way to deal with free​ riders?

Exclude citizens from benefiting from the good or service.

Firms A and B plan to collude in an economy for their similar​ products, which includes the grim strategy for punishment. They plan to set the price of their product at​ $8. The marginal cost of Firm A is​ $5 and Firm B is​ $4.50. If firm A is impatient to earn more profits and Firm B wishes to last in the business for the​ long-run, which of the following situations would likely​ occur?

Firm A reduces the price to​ $7 causing Firm B to reduce its price to​ $4.50.

Which of the following common features do monopolistically competitive markets and monopolies​ share?

Firms face​ downward-sloping demand curves.

Now suppose their office passes a rule that says employees are not allowed to listen to music on their speakers while working. As​ before, Jones and Smith can bargain at a zero cost. What will be the final outcome in this​ case?

Jones buys headphones to listen to​ music, giving him net benefits worth​ $150. Smith does not suffer any damages.

Both monopolies and monopolistically competitive firms set marginal revenue equal to marginal cost to maximize profit. Given the same cost​ curves, would you expect prices to be higher in a monopoly or a monopolistically competitive​ market?

Monopoly, because its demand is more inelastic.

Monopolistically competitive firms earn zero economic profit in the long run as do perfectly competitive firms. Does this mean that total surplus is maximized in a monopolistically competitive​ market?

No, because firms restrict output to raise price.

Is the entire burden of the tax always borne by those on whom it is​ imposed?

Not​ necessarily, since the burden of the tax depends on price elasticity.

Which of the following best illustrates the tragedy of the​ commons?

Overfishing in public waters.

You are the County Commissioner of Hazard County. ​ Dwight's neighbors bring a complaint before you that​ Dwight's hog farm is creating a terrible​ odor, and they are demanding government action. You respond to the​ neighbor's complaints by putting a tax on​ Dwight's hog production. Taxing​ Dwight's hog production is an example of ________________

Pigouvian taxation

In an industrial​ township, unplanned growth resulted in several companies polluting the environment with inefficient disposal of waste from the production​ process. In this​ case, the production of the companies is such that _______.

Qmarket>Qoptimal

Which of the following is the outcome of bargaining when Jones and Smith can bargain at zero​ cost?

Smith gives​ $50 to​ Jones, and Jones agrees to listen to music using his headphones.

After much​ backlash, the government decides eliminate the​ $5-per-gram tax on consumers.​ Instead, the government replaces it with a​ $5-per-gram tax on sellers. How would this impact the​ market?

Supply would shift up by​ $5

What happens in a monopolistically competitive market when new firms enter the​ market?

The existing​ firm's demand curve shifts in and becomes flatter.

Positive externality will occur when​ _____.

The marginal social​ benefit is greater​ than the marginal cost to produce at the market equilibrium

Suppose Good A belongs to a market where the firms earn zero economic profits in the​ long-run and entry of new firms will result in price changes that operate through shifts in the market supply curve for Good A. Which market structure does Good A belong​ to?

The perfectly competitive market.

Which of the following is not a common characteristic between a monopoly and monopolistic​ competition?

The products sold have close substitutes.

How is a monopolistically competitive market similar to a perfectly competitive​ market?

There are no restrictions on the entry of new firms.

Why does a monopolistically competitive industry make zero economic profit in the​ long-run?

There is the free entry of many firms in the​ long-run.

Why is it difficult for the market to deliver socially efficient quantities of goods like clean air or street​ lighting?

These are examples of public goods; ​therefore, even if you do not pay for the good you still get to enjoy it.

What is the intent of a Pigouvian​ tax?

To induce producers of a negative externality to reduce production to the socially optimal level.

You respond to the business​ leaders' request by giving Ms. Daisy money to buy more flowers. Giving Ms. Daisy money to buy more flowers is an example of:

a Pigouvian subsidy

Jeb mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of:

a negative externality

The​ prisoners' dilemma is​ ____________ with a​ ____________ equilibrium that is not the best outcome for both players.

a simultaneous move​ game; dominant strategy.

The economic profits made by a monopolistically competitive firm decreases when there is __________________ and is equal to zero __________________.

an entry of a new firm; when in long-run equilibrium.

As long as a monopolistic competitor has a​ downward-sloping demand​ curve, it will produce at a level that is _______ the efficient scale of production and set a price _______ its marginal cost.

below; above

Externalities are called market failures because they​ ___________.

cause markets to produce suboptimal social outcomes.

An example of an oligopoly is the​ __________.

cell phone market

A pure strategy involves​ ____________.

choosing one particular action for a situation.

You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on​ county-owned park​ land, which is open to the public.​ Recently, the Reed brothers have started using large nets to catch large amounts of​ fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a:

common pool resource

When there is no dominant​ strategy, a​ player's optimal strategy ____ on the choices of the other player

depends

Oligopolistic firms that sell differentiated products determine their prices when prices are​ __________.

determined simultaneously by the firms as best responses given other firm prices.

When developing a dominant strategy in a​ simultaneous-move game, a​ player:

devises the same best response to every possible strategy of the other player.

How are the products sold by a monopolistically competitive firm different from the products sold in a competitive​ market? Unlike products sold in a competitive​ market, the products sold in a monopolistically competitive market are​ ___________.

differentiated

The​ free-rider problem arises when an individual​ ____________.

does not pay for a good because nonpayment does not prevent consumption.

After you examine the​ payoffs, you discern that​ BP's best response is to always bid low. Then bidding low would be​ BP's ______.

dominant strategy

More than one Nash equilibrium is possible​ if:

each​ player's best response changes based on the other​ player's strategy.

In an oligopoly with differentiated​ products:

economic profit will exist.

Collusive agreements between oligopolists would allow price to _______ marginal​ cost, resulting in positive economic profits. The breaking of a collusive agreement would involve one firm ________ its price and increasing market share. A grim strategy would ________ firms from breaking a collusive agreement.

exceed; lowering; discourage

What is not an example of a real life zero sum​ game?

free market transaction

Common pool resources are ____ in rivalry and ____ excludability

high, low

What approach would be the least effective way to deal with the overfishing​ problem?

limit who is allowed to fish in the lake

Suppose the government levies a corrective tax on the​ companies' production. The per unit tax charged would be such that it equals ________________________ of an externality.

marginal external cost

Consider four market​ structures: perfect​ competition, monopolistic​ competition, oligopoly, and monopoly. Firms in all four market structures maximize profits by producing the quantity where​ ___________.

marginal revenue equals marginal cost.

Seller A increases the price of its good by​ 20% and still enjoys a high market demand. Due to the high​ demand, there is an increase in the number of similar sellers in the​ long-run. This is an example of ________.

monopolistic competition.

Suppose you and your friends decide to go to the beach during spring break. You need to fly from Kansas City to Miami and over 12 separate airlines provide the service. This market is best characterized as​ ___________.

monopolistic competition.

every dominant strategy equilibrium is a _______.

nash equilibrium

You are the County Commissioner of Hazard County. Jeb brings a complaint before you that​ Dwight's hog farm is creating a terrible odor. The noxious odor from​ Dwight's hog farm is a:

negative externality

In a Nash​ equilibrium:

neither player can change strategy and improve his or her payoff.

When Jones and Smith can bargain at zero​ cost, the new rule of the office has ______ impact on achieving the economically efficient outcome.

no

Public goods are

non-rival and non-excludable

Which method is not a recommended approach supported by externality theory to deal with this​ problem?

nonprofit intervention

If this externality from​ Dwight's farm is left​ unaddressed, then Dwight will continue to _____ in regards to the social surplus optimum.

overproduce

George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of:

positive externality

You are the County Commissioner of Hazard County. Local business leaders are thrilled that Ms. Daisy has planted a panorama of flowers around her store front designed to look like cute kittens. Tourists have been coming from neighboring towns to see the​ flowers, and this tourism has been increasing business activity for many businesses. The local business leaders would like you to convince Ms. Daisy to plant more flowers so that tourism continues to increase. The business generated for other stores by Ms.​ Daisy's flower display is an example of a:

positive externality

A mosquito control program in a city is a

public good

A video on YouTube is a

public good

Suppose that a goalie is playing a mixed strategy between diving to the left and the right. A player decides which strategy to employ when playing a game with mixed strategies by choosing​ ____________.

randomly.

common pool resource goods are

rival

In a monopolistically competitive​ market, a firm earning negative economic profit in the short run will​ ____________.

shut down only if price is less than average variable cost.

when you want to discourage an​ activity, you should ______ it

tax

A collusive agreement between two firms is likely to break down when​ ____________.

the market has little long minus term value.

A dominant strategy equilibrium exists​ if:

the relevant strategy for each player is a dominant strategy.

A​ zero-sum game is when​ ___________.

the sum of the payoffs is zero.

The overfishing by the Reed brothers is an example of

tragedy of the commons

Firms equate price and marginal cost. perfect competition: ______ monopoly: ______ monopolistic competition: _____

true; false; false

new firms are free to enter the industry in the long run. perfect competition: ______ monopoly: ______ monopolistic competition: _____

true; false; true

firms equate marginal revenue and marginal cost perfect competition: ______ monopoly: ______ monopolistic competition: _____

true; true; true

In the short​ run, a monopolistic competitor _____ practice marginal cost pricing. In the long​ run, a monopolistic competitor _____ earn an economic profit.

will not; will not

Suppose that a player has a dominant strategy. Would she choose to play a mixed strategy​ (such as playing two strategies each with probability​ 50-50)? Why or why​ not?

​No, because it would involve choosing actions other than the dominant strategy.

In a game with mixed​ strategies, does either of the players have a dominant​ strategy? Why or why​ not?

​no, because the best choice in a mixed strategy game is to pick a random strategy.