People who always choose not to participate in fair games are called
a. risk takers.
b. risk averse.
c. risk neutral.
d. broke.
Suppose that the two persons in an exchange economy (A and B) have utility functions
given by
Along the contract curve, B’s ratio of Y to X will be
a. 2:1.
b. 1:1.
c. 1:2.
d. between 1:1 and 1:2.
A nonexclusive good is a good which
a. is sold in various markets.
b. is impossible to keep people from enjoying the benefits the good provides.
c. is produced by a perfectly competitive firm.
d. is produced at the lowest possible cost.
If an individual’s utility function is given by and I = 100,
x = 1, y = 4, his or her preferred consumption bundle will be:
a. (20, 20).
b. (50, 12.5).
c. (40, 15).
d. (30, 15).
When an individual’s wage rises, the income effect tends to
a. increase hours worked.
b. decrease hours worked.
c. leave hours worked unchanged.
d. it is impossible to predict what will happen to hours worked.
If utility is separable in a three-good utility function
then for
changes in
a. both be gross substitutes for x1 .
b. both be gross complements for x1 .
c. be such that if one is a gross substitute for x1 , the other is a gross complement for x1 .
d. both be gross substitutes or both be gross complements for x.
As long as marginal cost is less than average variable cost,
a. both average total costs and average variable costs will be falling.
b. average total costs will be falling but average costs may be rising or falling.
c. average fixed costs are rising.
d. average total costs are falling but average fixed costs may be rising.
In the real world, a monopolist’s costs will often be
a. lower than for a firm in a competitive industry.
b. equal to the costs of a firm in a competitive industry.
c. higher than for a firm in a competitive industry.
d. almost zero.
For the practice of price discrimination to be successful, the monopoly must
a. be able to prevent resale of its product.
b. face similar demand curves for various markets.
c. have similar costs among markets.
d. have a downward sloping marginal cost curve.
The Nash equilibrium is a Bertrand game of price setting where all firms have different
marginal cost is
a. efficient because all mutually beneficial transactions will occur.
b. efficient because of the free entry assumption.
c. inefficient because some mutually beneficial transactions will be foregone.
d. inefficient because of the uncertainties inherent in the game.
Which of the following utility functions best represents the idea that two goods, xand y,
are perfect complements?
a.
b. U(x, y) = x + y.
c. .
d. U(x, y) = min (x, y).
Consider three ways of allocating two goods in a twoperson exchange economy.
I. Both individuals take prices as given and equilibrium prices are established by an
impartial auctioneer.
II. One individual can act as a perfect price discriminator and force the other individual
to pay a different price for each unit of a good that is traded.
III. One individual is a monopolist and can charge the other individual a single,
utilitymaximizing price.
Which of these situations is efficient?
a. None of them.
b. Only I.
c. I and II, but not III.
d. I and III, but not II.
e. All of them.
What are the pure-strategy Nash equilibria of the following game?
a. Both play A.
b. Both play B.
c. Two equilibria: both play B in one and both play C in the other.
d. Two equilibria: 1 plays B and 2 plays A and vice versa.
Which of the following utility functions exhibits constant relative risk aversion?
a. U(W) = W.
b.
c. U(W) = ln W.
d. U(W) = .
If an individual buys only two goods and these must be used in a fixed relationship with
one another (e.g., coffee and cream for a coffee drinker who never varies the amount of
cream used in each cup), then
a. there is no substitution effect from a change in the price of coffee.
b. there is no income effect from a change in the price of coffee.
c. Giffen’s Paradox must occur if both coffee and
cream are inferior goods.
d. an increase in income will not affect cream purchases.
A cartel-like collusive solution can be a Nash equilibrium only in price-setting games
with
a. infinite replications.
b. finite replications.
c. dominant strategies.
d. more than two players.
Bargaining costs are generally high in cases involving environmental externalities
because
a. there are strong incentives to be a free rider.
b. many individuals may be affected by the externalities.
c. it is difficult to measure the costs of the externalities.
d. all of the other answers are correct.
Consider two situations: In situation A the production of widgets is monopolized by a
single firm. In situation B the production of widgets is perfectly competitive. In both
situations the supply of labor to widget makers is infinitely elastic at a wage of w. In
this case, the product
a. will be the same in the two cases.
b. will be higher in case B than in case A.
c. will be higher in case A than in case B.
d. From the information given it is not possible to make a definite statement about the
marginal value product of labor.
Suppose the production function for good q is given by where k and l are
capital and labor inputs. Consider three statements about this function:
I. The function exhibits constant returns to scale.
II. The function exhibits diminishing marginal productivities to all inputs.
III. The function has a constant rate of technical substitution.
Which of these statements is true?
a. All of them.
b. None of them.
c. I and II but not III.
d. I and III but not II.
e. only I.
For the cost function C = 100 + .3q,
a. marginal cost is constant.
b. average cost is U-shaped.
c. fixed costs diminish with q.
d. all of the other answers are correct.
Quotas that limit the quantity of imports of a foreign good provide an incentive for
foreign suppliers to
I. provide higher quality goods.
II. seek more open markets elsewhere.
III. lower prices to be more competitive.
IV. stop all trade with the country imposing the quotas.
Which of the above statements are true?
a. I and II.
b. I and III.
c. II and IV.
d. I, III, and IV.
e. III only.
If there are only two goods and these are consumed in fixed proportions, the price
elasticities of demand for these two goods will sum to
a. 0.0
b. – 0.5
c. -1.0
d. a number between 0 and -1.
A nonrival good is a good which
a. is produced by a monopoly.
b. is produced by a cartel.
c. can provide benefits to additional users at a zero marginal cost.
d. is sold in a single market.
A linear total cost curve which passes through the origin implies that
a. average cost is constant and marginal cost is variable.
b. average cost is variable and marginal cost is constant.
c. average and marginal costs are constant and equal.
d. We need more information to answer question.
Product differentiation complicates the study of oligopolies because such markets may
not
a. be efficient.
b. have prices equal to marginal cost.
c. have free entry and exit.
d. obey the law of one price.
Symmetry of net substitution effects is one of the principal conclusions of the theory of
utility maximization. Which two mathematical theorems are used to prove this
symmetry?
a. Taylor’s Theorem and Fundamental Theorem of Calculus.
b. Cauchy’s Theorem and DeMonre’s Theorem.
c. Lagrangian Theorem and Fundamental Theorem of Calculus.
d. Envelope Theorem and Young’s Theorem.
An individual’s demand curve
a. represents the various quantities that a consumer is willing to purchase of a good at
various price levels.
b. is derived from an individual’s indifference curve map.
c. will shift if preferences, prices of other goods, or income change.
d. all of these answers are correct.
A monopolist union that desired to maximize its total wage bill (w l) would offer that
quantity of labor for which
a. labor’s marginal productivity is zero.
b. labor’s wage falls to zero.
c. the quantity of labor hired is as great as possible given the firm’s demand curve.
d. the marginal revenue from providing one more worker to the market is zero.
More risk averse people will
a. hold fewer risky assets because marginal utility is rapidly diminishing.
b. hold fewer risky assets because marginal utility is greater.
c. hold fewer risky assets because rates of return are more uncertain.
d. hold fewer risky assets because marginal utility is negative.
An increase in the wage rate will have a greater effect on average costs
a. the larger the proportion labor costs are of total costs and the easier it is to substitute
capital for labor.
b. the larger the proportion labor costs are of total costs and the harder it is to substitute
capital for labor.
c. the greater is the diminishing marginal product of labor.
d. the greater are returns to scale.
It is important to understand oligopoly markets because
a. although few real world markets are oligopolies, their existence raises interesting
theoretical questions.
b. oligopolies typically generate more deadweight loss than monopolies.
c. oligopolies can generate a whole range of possible outcomes between
monopoly and perfect competition.
d. one can predict the market outcome exactly just by knowing the number of firms in
the market.
If the market for bottled spring water is characterized by a very elastic supply curve and
a very inelastic demand curve, an outward shift in the supply curve would be reflected
primarily in the form of
a. higher prices.
b. higher output.
c. lower prices.
d. lower output.
A deadweight loss of consumer and/or producer surplus occurs when
a. producers fail to maximize profits.
b. mutually beneficial transactions cannot be completed.
c. consumers do not maximize their utility.
d. the price of inputs increases.