042913

Learning by Doing:Multiple Choice Q & A

April 26, 2013

Announcements (1/3)

• Practice questions for the midterm (week from today!) are now posted on website.– Do not need to be ``passed in.”

• Denise will go over ``Old Exam 1 – Old Exam 4” in Mon and Wed Sections

• Jake will do a midterm review Wed night and go over other 4 documents ``efficiency”-``externalities.’’– Wednesday, May 1, WLH 2005, 7-8:50 pm

Midterm Specifics (2/3)

• All topics from day 1 through last Friday.

Warnings (2nd announcement):(1) You must be on-time to exam. Friday, May 3, 3pm sharp.

-10% Deduction if you are 1 second late.-100% deduction if you arrive after

someone else finishes and leaves room.(2) No leaving room during exam (it’s less than an hour).

Teaching Reviews (3/3)

• You should have received an email for a “mid-quarter Evaluation” for this class.

• Please fill it out!

Last Class

• Finished discussing externalities• Focused on the “tragedy of the commons.’’• Main insight: optimality requires MR=MC, but

individual only pays attention to MR=ATC.

Today

• Will do practice multiple choice questions together

• Three goals:– (1) Understand where the class is at– (2) Refresh understanding of different sections and

bring together – (3) Practice sequential elimination of bogus

answers

1. The concept of efficiency is NEVER based on which of the following predetermined attributes

of buyers and sellers? A. Buyers’ income.B. Technology.C. Individual worker abilities.D. Policies that will most quickly increase incomes for

those in poverty.E. Buyers’ tastes.

2. When compared with a pure monopoly, price discrimination

A. reduces total surplusB. increases or keeps constant surplus to sellers and to society as

a whole but never increases buyers’ surplus.C. increases or keeps constant surplus to buyers and to society

as a whole but never increases sellers’ surplus.D. always increases total surplusE. increases or keeps constant surplus to buyers and to society

as a whole and sometimes increases sellers’ surplus.

3. Economists consider monopolies socially undesirable because a monopolist

A. always earns positive economic profitsB. can charge any price she wantsC. exploits the inelastic nature of demandD. produces less than the socially efficient amountE. produces more than the socially efficient amount

4. Economies of scale are a defining feature of a natural monopoly. This means that

A. marginal cost equals marginal revenueB. marginal cost will always be less than average total costC. marginal cost will always be less than average variable costD. marginal cost will always be greater than average total costE. marginal cost will always be greater than average variable

cost

5. Game theory is useful in studying imperfect competition because, unlike the previous tools, it

incorporatesA. profit maximizationB. more than one goodC. timeD. utility maximizationE. interdependency

6. Suppose that two players cannot achieve an optimal outcome because neither is credible. This is

an example ofA. the prisoner’s dilemmaB. a commitment problemC. a dominant strategyD. a Nash equilibriumE. a payoff

7. Using psychological incentives to solve a commitment problem will not be very effective in a

game that is playedA. repeatedly between two strangersB. only once between two family members who live in the same

homeC. only once between two strangersD. repeatedly between two family members who live in the same

home.E. Repeatedly between friends who live together

8. Which of the following factors would make it easier to apply the Coase Theorem to solve an externality?

A. The market supply and demand curves reflect all costs and benefits.B. The gains from reducing the externality are small compared to the costs

of negotiating a solutionC. The gains from reducing the externality are large compared to the costs

of negotiating a solutionD. The people involved cannot monitor each others’ actions to ensure

they obey an agreement.E. None of the above.

9. Most states require public school districts to offer kindergarten to young children. If there is a belief that

attending kindergarten generates an externality, this mandate is an example of

A. intrusive state governmental mandatesB. a legal remedy for an externalityC. a private solution for an externality, as suggested by the Coase

theoremD. a government solution of an externality along the lines of the Coase

theoremE. an external benefit

10. Positional externalitiesA. only occur in professional sportsB. arise in situations where absolute performance is the criteria

for success.C. cause people to invest too little in performance enhancementD. arise when an increase in one person’s performance reduces

the expected reward of the other participantsE. arise when one person is taller than another person

11. Which one of the following is an example of exclusive contracting for a natural monopoly?

A. Municipal garbage collection through a single private company.

B. A state-owned electric power company.C. Satellite television service.D. A bookstore in a small town.E. An oil well in Alaska.

12. Cost-plus regulation of a natural monopoly involvesA. letting the firm set their price and then reducing that by

a fixed amount.B. insuring that the firm charges a price equal to its explicit

costs of production plus a markup to cover implicit costs.C. granting the firm a patentD. keeping other firms from enteringE. creating a government-owned corporation.

13.

Bill Decides

Ted Decides

$1000 (Ted)$1000 (Bill)

$1600 (Ted)$1400 (Bill)

$1400 (Ted)$1600 (Bill)

$800 (Ted)$800 (Bill)

A.

B.

C.

D.

14. How many equilibria?

Bill Decides

Ted Decides

$1400 (Ted)$1500 (Bill)

$800 (Ted)$1500 (Bill)

$1300 (Ted)$1600 (Bill)

$700 (Ted)$1600 (Bill)

A. 1B. 2C. 3D. 4

15. How many equilibria?

Bill Decides

Ted Decides

$1400 (Ted)$1600 (Bill)

$800 (Ted)$1600 (Bill)

$1400 (Ted)$1600 (Bill)

$800 (Ted)$1600 (Bill)

A. 1B. 2C. 3D. 4

16. A compensating subsidy used to rectify an external benefit from consuming a good will

A. cause the supply curve to shift up and reduce the quantity of the good produced

B. cause the demand curve to shift up and increase the quantity of the good produced

C. cause the supply curve to shift down and increase the quantity of the good produced

D. cause the demand curve to shift down and decrease the quantity of the good produced

E. have no effect on the quantity of the good produced