Final Exam

Open economy

world price

Why is there often resistance to free trade?

Specific groups may be hurt by free trade.

Player A

Up down

If a society's consumption possibilities are identical to its production possibilities that society has

a closed economy.

A dominant strategy exists if

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

A tariff is a tax imposed on ______ good.

an imported

Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. The clear outcome of this game is that:

both Savannah and Sam will cut their price.

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n)

cartel.

As world tariff is imposed

demand lowers but more suppliers

If the United States is a net importer of bananas, free trade will benefit the

domestic banana consumers

If Nepal is a net importer of computers, free trade will hurt the

domestic producers of computers.

If Australia is a net exporter of wool, free trade will benefit the

domestic producers.

Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts his price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Sam, cutting her price to $2.90 per gallon is a:

dominant strategy.

Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900. For Savannah, keeping her price at $3 per gallon is a:

dominated strategy.

A society could achieve a higher level of production if

each person specializes according to their comparative advantage.

The reason that the prisoner's dilemma presents a dilemma is that:

each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy.

World price above closed economy price

exporter

If the domestic quantity supplied of a good is greater than the domestic quantity demanded, the country is likely to be a(n)

exporter of the good.

In an open economy, a society's consumption possibilities are typically ____ its production possibilities.

greater than

Taiwan exports tools to the United States. Consumers in Taiwan will probably pay a _____ price for tools with free trade than they would with a closed economy.

higher

World price below closed economy price

importer

If the domestic producers of a good are hurt by a free trade, it suggests that the country

is a net importer of that good.

Cartel agreements are difficult to sustain because

it's a dominant strategy for each cartel member to cheat on the cartel agreement.

Player B

left right

Most cartels cease to be effective because

of the incentive to cheat on the cartel agreement.

equilibrium point

price in closed economy

The three elements of a game are

the players, the strategies, and the payoffs.

Suppose the market for bottled water is served by two oligopolists. If they reach an agreement to restrict production and charge a price above marginal cost, then

their agreement is likely to eventually collapse.

In the Nash equilibrium of a prisoner's dilemma:

there is unrealized opportunity for both players to gain.