ECON 202 (1.1-1.4)
Consider the following game, where players' payoffs are measured in dollars. cooperate defect cooperate 80,80 0,100 defect 100,0 40,40 Which of the following statements is true? A) (defect,defect) is the Nash equilibrium B) (cooperate,cooperate) is the Nash equilibrium C) If defectors were fined $30, both players dominant strategy would be to cooperate D) Neither player has a dominant strategy
A) (defect,defect) is the Nash equilibrium When both players defect, no player has incentive to cooperate, because that would reduce their payoff from 40 to 0. Since both players would be better off at (cooperate, cooperate) then at (defect, defect) this game is a prisoners' dilemma
Consider the following four games where players Row and column each have two strategies: A and B. Which of the following games illustrates a prisoners' dilemma? A) A B A 3,3 1,4 B 4,1 2,2 B) A B A 4,3 2,1 B 1,2 3,4 C) A B A 4,4 1,3 B 3,1 2,2 D) A B A 3,3 2,4 B 4,2 1,1
A) A B A 3,3 1,4 B 4,1 2,2 This is a prisoners' dilemma because there is a single Nash equilibrium (B,B) and this dominant strategy equilibrium is worse for both player than if both players played the strategy A
Which of the following statements regarding Adam Smith are correct? A) Adam Smith argued that coordination among large numbers of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. B) Adam Smith argued that people were guided entirely by self-interest C) Adam Smith argued that all markets were characterized by perfect competition D) Adam Smith argued there should be no government involvement in the economy
A) Adam Smith argued that coordination among large numbers of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. This is Adam Smith's idea of the "invisible hand."
The process of requiring fewer inputs to produce the same output is referred to as: A) Technological progress B) Specialization C) History's hockey stick D) Capitalism
A) Technological progress The Industrial Revolution launched the permanent technological revolution in Britain around 1800
Consider a student whose final grade increases with the number of hours spent studying. Her choice is between more free time and higher grades, both of which are 'goods'. Which of the following is not the same as her marginal rate of transformation between the two goods? A) The opportunity cost of free time B) The number of percentage points the student would gain by giving up another hour of free time C) The slope of the student's feasible frontier D) The number of percentage points the student is willing to give up for another hour of free time
D) The number of percentage points the student is willing to give up for another hour of free time The number of percentage points a student is willing to give up is equal to the student's marginal rate of substitution
You currently work for 40 hours a week at wage rate of £12 an hour. Your free hours are defined as the number of hours not in work, which in this case is 24 hours x 7 days - 40 hours = 128 hours per week. Suppose that you are happy to keep your total weekly income constant. Then: A) To have 16 more hours of free time, your wage rate needs to increase by £8. B) If your wage increases to £16 an hour, then your free time will increase to 130 hours. C) Doubling the wage rate would decrease your working hours to 30 hours per week D) If your pay is cut to £9, in order to keep your income constant, you'll only get 100 hours of free time
A) To have 16 more hours of free time, your wage rate needs to increase by £8. The current weekly income is £12 x 40 hours = £480. 16 extra hours of free time means 128 hours + 16 hours = 144 hours of free time, or 24 hours of work. To keep your weekly income constant, your wage rate needs to increase to £480/24 = £20/hour, which is an increase of £8.
According to the World Bank, real per capita income in the U.S. increased from $57,640 in 2015 to $58,030 in 2016. What was the approximate annual growth rate? A) 1.0% B) 0.7% C) $390 D) 6.8%
B) 0.7% Growth rate = ($58,030-$57,640)/$57,640 = 0.007 or 0.7%
Suppose that the US economy expands at a constant annual rate of 2% for the rest of the 21st century. A plot of the level of GDP over time will fit: A) A downward-sloping line on both a linear scale and a ratio scale B) A convex line on a linear scale, and a straight upward-sloping line on a ratio scale C) A concave line on a linear scale, and a straight upward-sloping line on a ratio scale D) A straight upward-sloping line on a linear scale, and a convex line on a ratio scale
B) A convex line on a linear scale, and a straight upward-sloping line on a ratio scale A series that grows at a constant rate looks like a convex line on a linear scale and a straight upward-sloping line on a ratio scale.
Which of the following statements regarding Nash equilibrium are correct? A) A Nash equilibrium will always exist. B) In a Nash equilibrium, no player has an incentive to change their strategy given the other player's strategy. C) Some players have an incentive to deviate from a Nash equilibrium D) A dominant strategy equilibrium is not a Nash equilibrium
B) In a Nash equilibrium, no player has an incentive to change their strategy given the other player's strategy. A Nash equilibrium can also be defined as a set of strategies such that each player's strategy is a best response to the strategies chosen by the other player(s). A Nash equilibrium is an equilibrium because no player has an incentive to change behavior.
Which of the following statements regarding the Malthusian model are correct when there is a permanent, positive technological shock (such as an improved seed)? A) The population initially rises but then falls to the pre-technological shock level B) Income initially rises but then falls back to the subsistence level C) There is an immediate and permanent rise in the average product of labor D) Both population and wages increase in the long run
B) Income initially rises but then falls back to the subsistence level In Malthus' model, subsistence is the average product at which there is no population growth. An improved seed will temporarily raise the average product above subsistence, but the population will then grown until the average product again equals subsistence
Capitalism is an economic system based on: A) Private property B) Private property, markets, and firms C) Private property and markets D) Private property, markets, and state-owned firms
B) Private property, markets, and firms While many economic systems are built on private property and markets, capitalism is unique in that most people work for firms rather than for themselves
In Britain before 1870, both wages and hours worked rose, while after 1900 working hours fell as wages continued to rise. Based on this information, which of the following statements is correct? A) Sometime between 1870 and 1900 the substitution effect of a rise in the wage rate on the hours of free time changed from negative to positive. B) The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900 C) After 1900, the substitution effect dominated the income effect, so that hours of free time rose D) In the period before 1870, the income effect dominated the substitution effect
B) The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900 As wages increase, so does the opportunity cost of free time, so the substitution effect is always negative. However, as wages increase so do workers' incomes, allowing them to "purchase" greater leisure, so the income effect is always positive
Consider the following assurance game. The table below shows both players' payoffs (measured in dollars) for each strategy set. Becky Anthony Opera Football Opera 80,20 10,10 Football 0,0 40,60 Which of the following statements best summarizes this social interaction? A) Both players want to attend the same event, but Anthony prefers the football and Becky B) The players prefer to attend different events, so they will not go together C) Both players want to attend the same event, but Anthony prefers the opera, and Becky prefers football. D) The players don't care which event they attend, as long as they go together.
C) Both players want to attend the same event, but Anthony prefers the opera, and Becky prefers football. The Nash equilibria is this game are (opera, opera) and (football, football). Anthony prefers the former and Becky prefers the latter.
Which of the following statements is correct regarding disposable income? A) Disposable income is the amount of income that is given away B) Disposable income is total income from wages, profit, rent, and interest C) Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions D) Disposable income is the exact measure of one's wellbeing
C) Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions Disposable income is total income minus transfers to other such as taxes, which is the maximum amount of possible expenditure without borrowing or selling
Diminishing average product of labor means: A) that there are fewer workers working a fixed plot of land B) as more labor is used in a production process, the amount produced per worker increases C) as more labor is used in a production process, the the amount produced per worker decreases D) that the number of workers employed in the production process has no impact on the amount produced per worker
C) as more labor is used in a production process, the the amount produced per worker decreases This is the foundations of Mathus' model.
Which of the following statements regarding social preferences is correct? A) An individual has social preferences if they do not care about inequality in society B) Social preferences are the preferences of a society as a whole C) "Keeping up with the Joneses" (i.e. envy) is not an example of behavior motivated by social preferences D) Altruism is an example of social preferences
D) Altruism is an example of social preferences Altruism is the willingness to bear a cost in order to benefit somebody else. Therefore it is an example of social preferences
According to Malthus, which of the following are the causes of diminishing average product of labor? A) Coordination problems due to a larger labor force B) There is an infinite amount of resources C) Environmental effects of over-cultivation (e.g. increased carbon emission) D) More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality
D) More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality This is the main cause of diminishing average product of labor
Which of the following is a non-excludable public good? A) A sweater B) Library books C) Netflix D) Streetlights
D) Streetlights Streetlights are non-excludable (since you cannot stop your neighbors from benefiting) and non-rival (since your use does not reduce the light available to your neighbors). This makes them a pure public good.
