Macro- Exam 1

The following table shows how the payoffs to the Singhs and Kapurs depend on their choice of cars. The first entry in each box is the payoff to the Singhs. Consider the following proposed remedies for the positional externality. Which of these would induce both families to choose small environmentally friendly cars? 1) A tax of 1.75 on large petrol hungry cars. 2) A legally binding agreement that if they buy different types of cars, the family which buys the large car will pay 1.0 to the other family. 3) A subsidy of 1.75 on small environment-friendly cars.

1 and 3

Which of the following are examples of free riding? 1) Fellow students benefitting from your efforts in a group work assignment. 2) Fare dodgers on the subway. 3) Small shareholders, having not read the accounts or the reports, are allowed to vote with large investors at a shareholders meeting. 4) Fishermen in an overfished lake.

1 and 3

Which of the following are classified as firms? 1) Companies employing unpaid student interns as well as paid workers. 2) Nationalised railways. 3) Non-profit organisations. 4) Employee-owned cooperatives.

1) Companies employing unpaid student interns as well as paid workers.

The following graph shows the northern hemispheres temperature since year 1000, reported as the deviation from the 1961-90 mean temperature. Based on this information, which of the following statements is correct? 1) The 1961-90 mean temperature was 0.2 to 0.4 degrees higher than the temperature between 1450 and 1900. 2) The negative numbers on the graph indicate that the temperature consistently fell between 1100 and 1900. 3) A consistent rise in temperature is a post-1980 phenomenon. 4) The graph proves that CO_2 emissions are the cause of temperature rise

1) The 1961-90 mean temperature was 0.2 to 0.4 degrees higher than the temperature between 1450 and 1900.

This table shows the payoff matrix for a simultaneous one-shot game in which Anil and Bala choose their crops. 1) There are two Nash equilibria: (Cassava, Rice) and (Rice, Cassava). 2) The choice of Cassava is a dominant strategy for Anil. 3) The choice of Rice is a dominant strategy for Bala. 4) There are two dominant strategy equilibria: (Cassava, Rice) and (Rice, Cassava).

1) There are two Nash equilibria: (Cassava, Rice) and (Rice, Cassava).

Which of the following statements regarding social preferences are correct? 1) They are the preferences of society as a whole. 2) Altruism is an example of social preferences. 3) An individual has social preferences if he does not care about the outcomes of others in society. 4) Keeping up with the Joneses is an example of behaviour that could be motivated by social preferences.

1,2,4

Which of the following statements regarding procedural judgments of fairness is correct? 1. A transfer system where income earners are taxed to provide benefits to the unemployed may or may not be considered to be procedurally fair. 2.Consider an ultimatum where only those with university degrees can be the Proposer. As the Proposer is free to propose any amount and the Responders choice of response is voluntary, the game is procedurally fair. 3. Substantive fairness implies procedural fairness 4. Procedural fairness implies substantive fairness

1. A transfer system where income earners are taxed to provide benefits to the unemployed may or may not be considered to be procedurally fair.

Peter, John, and James are discussing how to share three apples and three oranges. Which of the following statements regarding Pareto efficient allocations is correct? 1.Assuming that Peter likes both apples and oragnes, there is no possible Pareto improvement to an allocation in which he has hall the apples and oranges. 2. It is always Pareto efficient for Pter, John, and James to have one apple and one orange each. 3. Assuming that at least one of them likes both apples and oranges, a Pareto efficient allocation may not exist. 4.There cannot be more than one Pareto efficient allocation

1. Assuming that Peter likes both apples and oragnes, there is no possible Pareto improvement to an allocation in which he has hall the apples and oranges.

Which of the following statements about the outcome of economic interaction is correct? 1. If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off 2. All participants are happy with what they get if the allocation is Pareto Efficent 3. There cannot be more than one Pareto-efficent outcome 4. According to the Pareto criterion, a Pareto effieient outcome if always better than an inefficient one

1. If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off

Which of the following economic institutions play an important role in capitalism as an economic system? 1) Families. 2) Government. 3) Private property. 4) Markets.

3) Private property. 4) Markets.

Which of the following statements about institutions (only considering the usage of the term in economics) are correct? 1. Institutions include organizations such as universities 2. Institutions are the rules of the game 3. Institutions must be written down 4. Institutions determine the power individuals have to get what they want in interactions with others

2 & 3

Dimitrios and Ameera work for an international investment bank as foreign exchange traders. They are being questioned by the police on their suspected involvement in a series of market manipulation trades. The table below shows the cost of each strategy (in terms of the length in years of jail sentences they will receive), depending on whether they accuse each other or deny the crime. The first number is the payoff to Dimitrios, while the second number is the payoff to Ameera (the negative numbers signify losses). Assume that the game is a simultaneous one-shot game. 1) Both traders will hold out and deny their involvement. 2) Both traders will accuse each other, even though they will end up being in jail for eight years. 3) Ameera will accuse, whatever she expects Dimitrios to do. 4) There is a small possibility that both traders will get away with two years each.

2 and 3

Which of the following is an example of a social dilemma? 1) Dilemmas discussed on social media. 2) Traffic jams due to a sub-optimally high level of car usage. 3) Dirty dishes piling up in the kitchen sink of your shared student accommodation. 4) The problem of how to look after the elderly in society.

2 and 3

The following graphs show the GDP per capita of four countries in both linear scale and ratio scale graphs. Based on this information, which of the following statements are correct? 1) Country A's GDP per capita grew at the fastest rate on average over the 10 years. 2) Country B's GDP per capita grew at a constant rate. 3) Country C's GDP per capita grew at a constant rate. 4) Country D's GDP per capita grew at the fastest rate on average over the 10 years.

2) Country B's GDP per capita grew at a constant rate.

Which of the following leads to higher GDP? 1) Wealth transfers from the rich to the poor, which lead to higher income equality. 2) Higher government expenditure on education. 3) Rebuilding and reopening an abandoned shopping mall, which is immediately occupied by new businesses. 4) Building a new manufacturing factory, which requires the clearing of forests.

2) Higher government expenditure on education. 3) Rebuilding and reopening an abandoned shopping mall, which is immediately occupied by new businesses. 4) Building a new manufacturing factory, which requires the clearing of forests.

Which of the following are examples of private property? 1) Factories in North Korea. 2) Library books from your school or university. 3) Slaves (in historical times). 4) Children (in todays society).

2) Library books from your school or university. 3) Slaves (in historical times).

The following table shows the nominal GDP (in current millions of US dollars) and the population (in thousands) of the US, China, and Luxemburg in 2015 (source: The World Bank). Based on this information which of the following statements is correct? OUP-U1-Q4-01

2) Luxembourgs GDP per capita was 12.6 times that of Chinas.

A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else. 1) equilibrium 2) Nash equilibrium 3) zero sum game 4) revealed prefere

2) Nash equilibrium

Capitalism as an economic system can be dynamic and successful because: 1) It allows firms to gain market power and thus eliminate their competitors. 2) Profits are claimed by the capitalists. 3) It allows failing firms to go bankrupt. 4) The government is absent.

2) Profits are claimed by the capitalists. 3) It allows failing firms to go bankrupt. 4) The government is absent.

Which of the following statements regarding democracy as a political system is always true? 1) The head of the state is elected directly by voters. 2) Virtually all adults are eligible to vote in an election. 3) Necessary for a capitalist economic system to succeed. 4) Individuals cannot influence elections or public policy through their financial contributions.

2) Virtually all adults are eligible to vote in an election.

The benfits that each party gains from a transaction compared to how they would have fared without the exchange. 1. allocation 2. gains from exchange 3. barganing power 4.Pareto criteron

2. gains of exchange

Judgements based on the characteristics of the allocation itself, not how it was determined. 1. procedural judgements of fairness 2. substantive judgements of fairness 3. reservation option 4. reservation indifference curve

2. substantive judgements of fairness

The laws and social customs governing the way people interact in society. 1. reservation option 2. incentive 3. instituation 4. private property

3

Anthony loves going to the opera while Becky loves watching football. The following diagram shows the payoffs for their choice of activity. For example if Anthony chooses opera and Becky chooses football, then the activities are valued at £10 to Anthony and £20 to Becky, respectively. Assume that they can only choose one activity (i.e. they cannot randomise). Based on this information, which of the following statements is correct? 1) There are two Nash equilibria: (Opera, Opera) and (Football, Football). 2) If Anthony announces that he will choose Opera and sticks to it, then (Opera, Opera) will be chosen. 3) If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen. 4) If Anthony offers £50 to Becky for coming to the opera with him, then (Opera, Opera) will definitely be chosen.

3) If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen.

The following table shows the productivity of labour in producing light, measured in lumen-hours per hour of labour, using different technologies. Based on this information, which of the following statements is correct? The labour productivity of producing light increased roughly linearly over the years. 2) The kerosene lamp in the late 1800s was ten times more efficient in terms of labour productivity than the tallow candles in the early 1800s. 3) The labour productivity of producing light increased by a factor of 1.5 or more in every decade between 1930 and 1970. 4) The productivity of labour in producing light using compact fluorescent technology is half a million times greater than when using the Babylonian sesame oil lamp.

3) The labour productivity of producing light increased by a factor of 1.5 or more in every decade between 1930 and 1970.

The willingness to bear a cost in order to benefit somebody else. 1) game theory 2) cooperation 3) altruism 4) fairness

3) altruism

An understanding that is common to most members of a society about what people should do in a given situation when their actions affect others. 1) social preferences 2) social dilemma 3) social norm 4) reciprocity

3) social norm

Which of the following statements regarding substantive judgements of fairness is correct? 1. Two people making substantive judgements of fairness about the same situation must necessarily agree. 2.If all individuals recieve an equal income then this allocation cannot be made fairer 3. Fairness may depend on the individuals freedom to choose without socially imposed limits 4. Happiness cannot be objectively measured and therefore cannot be used to evaluate the fairness of an allocation

3. Fairness may depend on the individuals freedom to choose wihtout socially imposed limits

Brian likes going to the cinema more than watching football. Anna, on the other hand, prefers watching football to going to the cinema. Either way, they both prefer to be together rather than spending an afternoon apart. The following table represents the happiness levels (payoffs) of Anna and Brian, depending on their choice of activity (the first number is Brian's happiness level while the second number is Anna's) 1) The dominant strategy for both players is Football. 2) There is no dominant strategy equilibrium. 3) The dominant strategy equilibrium yields the highest possible happiness for both. 4) Neither player would want to deviate from the dominant strategy equilibrium.

4

dominant strategy An outcome of a game in which every player plays his or her dominant strategy. 2) A game in which players choose strategies simultaneously, for example the prisoners' dilemma. 3) Situations in which the actions taken by each person affect other people's outcomes as well as their own. 4) Action that yields the highest payoff for a player, no matter what the other players do.

4

Which of the following statements is correct? 1) A social interaction is a strategic interaction where people are aware of the ways that their actions affect each other. 2) A strategy is an action that a person may take when that person is unaware of the effect of their action on others. 3) A best response is the strategy that results in the socially optimal outcome if all players choose it. 4) A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.

4) A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.

Which of the following transfers are classified as markets? 1) Birthday presents. 2) Theft of property. 3) Taxes and benefits. 4) Buy-now-pay-later deals.

4) Buy-now-pay-later deals.

Look again at Figure 1.10, which shows a graph of GDP per capita for West and East Germany, Japan and Spain between 1950 and 1990. Which of the following statements is correct? 1) Having a much lower starting point in 1950 was the main reason for East Germanys poor performance compared to West Germany. 2) The fact that Japan and West Germany have the highest GDP per capita in 1990 implies that they found the optimal economic system. 3) Spain was able to grow at a higher growth rate than Germany between 1950 and 1990. 4) The difference in East and West Germanys performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation.

4) The difference in East and West Germanys performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation.

An outcome of a game in which every player plays his or her dominant strategy. 1) dominant strategy 2) social interactions 3) inequality aversion 4) dominant strategy equilibrium

4) dominant strategy equilibrium

A change taht at least benefits one person without making anyone else worse off. 1. Pareto dominant 2. Pareto efficient 3. Pareto criteron 4. Pareto improvement

4. Pareto improvement

prisoners' dilemma

A game in which the payoffs in the dominant strategy equilibrium are lower for each player, and also lower in total, than if neither player played the dominant strategy.

equilibrium

A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model's description of the situation.

Tradegy of the Commons

A social dilemma in which self-interested individuals acting independently deplete a common resource lowering the payoffs of all.

strategic interaction

A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them).

An individual's well-being can be partly measured by: 1) Her disposable income. 2) The quality of her social and physical environment, such as friendship and clean air. 3) Goods and services that are provided by the government, such as healthcare and education. 4) Goods and services that are produced within the household, such as meals and childcare

All of them.

Which of the following are examples of capital goods? 1) Raw materials. 2) Buildings. 3) Intellectual property. 4) Patents.

All.

A desciption of who does what, the consquences of their actions, and who get what as a result.

Allocation

strategy

An action (or a course of action) that a person may take when that person is aware of the mutual dependence of the results for herself and for others. The outcomes depend not only on that person's actions, but also on the actions of others.

Which of the following is/are true of a ratio/logarithmic scale? A. On a logarithmic scale, the base is always e. B. The ratio scale in Unit 1 shows GDP per capita doubling on the vertical axis. C. If the data on a logarithmic scale produce a straight line, then the rate of growth is constant.

B. The ratio scale in Unit 1 shows GDP per capita doubling on the vertical axis. C. If the data on a logarithmic scale produce a straight line, then the rate of growth is constant.

Anna and Bea are playing a game of Rock-Paper-Scissors with payoffs as shown in the figure. Which of the following statements is true in this scenario? 1) This game has just one strictly dominant strategy. 2) This game has three strictly dominated strategies. 3) This game has three equilibria, where the two players use the same strategy. 4) Correct answers not provided

Correct answers not provided

Best response

In game theory, the strategy that will give a player the highest payoff, given the strategies that the other players select.

Economic reward or punishment, which influences the benfits and costs of alternative courses of action.

Incentive

Anil and Bala have the choice of using either integrated Pest Control (IPC) or Terminator (T) to solve the problem, of pest insects. The following table shows their payoffs depending on their choice and the following diagram shows these possible outcomes on a graph. Based on this information, which of the following is correct? 1. (I,I) if the unique Pareto efficient outcome 2. Anil and Bala can Pareto improve by moving from (T,T) to (T,I). 3. Anil and Bala will both be happy to move from the Pareto efficient (I,T) to the fairer Pareto efficient outcome (I,I) 4. None of the answers are correct

None of the answers is correct

The GDP in current US$ for selected countries and the world are given below in $ billions (source: World Bank). Based on this information, which of the following statements is correct? 1) The GDP of Japan grew by 10.3% over the 15 years. 2) Of the four countries, Nigeria was the only country that had a higher growth rate than that of the world over the 15 years. 3) The UK GDP growth rate was higher than that of the US. 4) The world GDP grew by over 10% per year on average.

Of the four countries, Nigeria was the only country that had a higher growth rate than that of the world over the 15 years.

Allocation A Pareto-dominates allocation B if at lease one party would be better off with A than B, and nobody would be worse off.

Pareto dominant

An allocation with the property that there is no alternative technically feasible allocation in whihc at lease one person would be better off, and nobody worse off.

Pareto efficient

The right and expectation that one can enjoy one's passions in ways of one's own choosing, exclude others from their use, and dispose of them by gift or sale to others who then become their owners

Private property

An evaluation of an outcome based on how the allocation came about, and not on the characteristics of the outcome itself, (for example, how unequal it is).

Procedural judgements of fairness

Benefiting from the contributions of others to some cooperative project without contributing oneself.

free riding

A model of strategic interaction that describes the players, the feasible strategies, the information that the players have, and their payoffs. 1) revealed preference 2) strategy 3) game 4) zero sum game

game

A branch of mathematics that studies strategic interactions, meaning situations in which each actor knows that the benefits they receive depend on the actions taken by all.

game theory

A good for which use by one person does not reduce its availability to others.

public good