ECO201E 2014 JUL EXAM

Q1
Assume you own and manage your own fruit stand. The financial information for the stand
is given below (all values are monthly).
Wholesale fruit cost $2,000
Labor $800
Fruit stand lease $1,000
Monthly revenue $5,000
Answer each of the following, based on the information provided.
a. Calculate your accounting profit
b. If your other employment opportunity is to earn $1000 per month working at a t-shirt stand
(and you are equally happy selling fruit or t-shirts), what is your economic profit? Should
you continue selling fruit? Explain.
c. What happens to your economic profit if you enjoy selling t-shirts and would be willing to
forego up to $250 per month to work selling t-shirts rather than fruit? Should you continue
selling fruit? Explain.

1a. Accounting profit = TR - (total explicit costs) = 5000 - 3800 = 1200 

1b. Economic profit = TR - (total implicit and explicit costs) = 5000 - (3800 + 1000) = 5000 - 

4800 = 200. Yes, because economic profit is positive. 

1c. Economic profit becomes -50. 5000 - (3800 + 1000 + 250) = 5000 - 5050 = -50. No, 

because economic profit is negative. 

Q2

You own and operate a fruit stand. Your demand curve is given by P = 0.5 – 0.002Q, where P is in dollars and Q is in kilograms of fruit. Your marginal cost curve is MC = 0.006Q. Your fixed costs equal $10.

a. Graph your demand and marginal cost curves.

b. Derive and graph your marginal revenue curve.

c. Calculate the profit-maximizing price and quantity and show them on your graph.

d. Calculate your profit.

e. Calculate consumer surplus at the profit-maximizing price and quantity

          

b. MR = 0.5 – 0.004Q.

c. Profit-maximizing price = $0.4, profit-maximizing quantity = 50.

d. Profit = TR – TC = ($0.4 X 50) – $10 – ($0.3 X 50) = –$5.

e. Consumer surplus = (½)(50)($0.1) = $2.5.

Q3

Assume a tax of $10 per unit is placed on sellers in the market for bicycles. Use the supply and demand functions below to find each of the following:

P = 150 P = 300 – 7.5 Q

where P is in dollars and Q is in millions of bicycles.

a. consumer surplus before the tax.

b. consumer surplus after the tax.

c. the loss in consumer surplus from the tax.

d. How does deadweight loss from the tax compare to the loss in consumer surplus in this particular situation? Explain.

a. C.S. before the tax = 1/2 (20) (150) = 1/2 (3000) = 1500.

b. C.S. after the tax = 1/2 (18.67) (140) = 1/2 (2613.8) = 1306.9.

c. The loss in consumer surplus = 1500 – 1306.9 = 193.10.

d. Since the supply curve is horizontal (the price elasticity of supply is infinite), there is no producer surplus in this case. Consumer surplus decreases by 193.10, but (10)(18.67) = 186.70 is collected in tax revenue. Deadweight loss = loss in C.S. – tax revenue which is 193.10 – 186.70 = 6.4. The deadweight loss triangle, calculated directly, equals 1/2 (1.33) 10 = 1/2  13.3 = 6.65 (which equals the above when rounding error is considered). 

Q4

You and a competitor are each selling t-shirts with the university logo at a table on campus. You must decide whether to sell your t-shirts for $15 each or $20 each. The profit you receive will depend on how much you decide to charge and on how much your competitor decides to charge. The payoff matrix for the decision is given below.

a.          If $15 and $20 are the only two price choices, what are the dominant strategies for you and your competitor?

b.         Is there an equilibrium? If so, what is it?

c.          If each firm knows that cutting price a little further from $15 has the same effect as cutting it from $20 to $15, what will price equal in the end? Explain

a The dominant strategy for each is $15.

b. Yes, at $15.

c. Price will eventually fall to equal marginal cost, since each firm knows that further cuts will lead to increased profits.

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HOPE YOU GET THE ANSWERS CORRECT.

AWESOME EXPLANATION OF FINDING ELASTICITY THROUGH POINT ESTIMATE

THANKS FOR THE CLEAR EXPLANATION. TOTALLY WOKE ME UP ON THE HOW-WHY SITUATION. *PEACE*

BUS203 QUIZ3 (Best results ever! ;))

Q As part of the move towards greater transparency about remuneration, Guideline 9.2 of the 2012 Singapore Code on Corporate Governance (2012 Code) encourages companies to fully disclose the remuneration of each individual director and the CEO on a named basis, to the nearest thousand dollars. In comparison, the 2005 Singapore Code on Corporate Governance only required disclosures within bands of S$250,000. Which of the following guideline(s) in the 2012 Code also support this principle of greater transparency towards remuneration?
I.    Companies should disclose in aggregate the total remuneration paid to the top 5 key management personnel (who are not directors or the CEO).
II.   Companies should prepare an annual remuneration report, as part of the annual directors' report.
III.  Companies should disclose more information on the link between remuneration paid to the executive directors and key management personnel, and their performance.
A I, II and III

Q In Singapore, the legal framework supports the market-based model of corporate governance because ____________.
A the Companies Act provides that the board of directors is responsible for the company

Q Under the 2012 Singapore Code on Corporate Governance, in which of the following scenarios should a lead independent director be appointed?
I.  The Chairman of the Board and the Chief Executive Officer is the same person.
II. The Chairman of the Board and the CEO are immediate family members.
III. The Chairman of the Board is part of the management team.
IV. The Chairman of the Board is not an independent director.
A I, II, III and IV

Q Given the agency problem, one of the biggest challenges would be to ensure ____________.
A goal congruence.

Q Examine the Singapore Code on Corporate Governance 2012 (CCG 2012) and identify an additional responsibility for the Board of Directors.
A Consideration of sustainability issues such as environmental factors, as part of the board of directors' development of strategy for the company

Q Which of the following is not a rationale for requiring independent directors on the board of directors of a listed company?
A To ensure that the minimum number of directors exceeds five directors.

Q In principle, for improved corporate governance, the Chairman and the Chief Executive Officer (CEO) should be separate persons. Which of the following best describes the rationale for this?
A It allows for an appropriate balance of power and greater ability for independent decision-making by the Board of Directors of a company.

Q The oversight of corporate governance of listed companies is now under ______________.
I.   Monetary Authority of Singapore
II.  Accounting & Corporate Regulatory Authority
III. Singapore Exchange
IV. Inland Revenue Authority of Singapore
A I and III

Q Which of the following best describes Guideline 5.3 of the 2012 Singapore Code on Corporate Governance?
A Directors should be assessed on an individual basis to determine whether he/she has contributed effectively and demonstrated commitment to his/her role as a director.

Q To improve corporate governance, companies are encouraged to establish a whistle-blowing process under the 2012 Singapore Code on Corporate Governance. Demonstrate your understanding on whistle-blowing process by choosing a statement that best describes the concept of whistle-blowing.
A The disclosure by a person, usually an employee, to the public or to those in authority, of mismanagement, corruption, illegality, or some other wrongdoing within his/her organization.

Q The first Code on Corporate Governance was issued in Singapore in _________.
A 2001

Q Which of the following best describes the concept of goal congruence?
A The alignment of the longer term interests of shareholders and the shorter term interests of the managers of a company

Q Which of the following principles are set out in the Principles of Corporate Governance issued by OECD (Organisation for Economic Cooperation and Development)?
I.    Rights of shareholders
II.   Key ownership functions
III.  Equitable treatment of shareholders
IV.  Responsibilities of the directors
A I, II, III and IV

Q Pursuant to Guideline 4.1 of the 2012 Singapore Code on Corporate Governance, which one of the following is not the role of the Nominating Committee?
A Develop a plan for the recruitment and training of employees.

Q Guideline 6.5 is a new guideline that provides the directors with greater support for making informed decisions. Develop an accurate description of this Guideline. Which of the following is an accurate description of this Guideline?
A The Board of Directors should have a procedure for directors to obtain independent professional advice at the company's expense, for the purposes of carrying out their directors' duties

Q Which of the following is/are models of corporate governance?
I.    Market-based model
II.   Relationship-based model
III.  Family mercantilism model
IV.  Private entrepreneurial model
A I, II and III

Q There are new requirements for directors to keep updated on trends and information in the 2012 Singapore Code on Corporate Governance. Which of the following best describes Guideline 12.8?
A The Board should disclose in the company's Annual Report the steps taken by the AC members to keep abreast of changes to accounting standards and issues which have a direct impact on financial statements

Q Based on Principle 13 of the 2012 Singapore Code on Corporate Governance, reporting lines of the company's Internal Auditor should be such that the primary line of reporting is to _____________.
A the Chairman of the Audit Committee of the company.

Q Which of the following best describes the relationship-based model of corporate governance?
A A model that focuses on the company as a productive entity in which the interest of various stakeholders, including the public, are vested.

Q The 2012 Singapore Code on Corporate Governance stresses the importance of communications with shareholders. Which of the following illustrates this concept?
A The Board of Directors should take steps to establish and maintain regular dialogue with shareholders so as to gather their views or inputs and to address their concerns.

RESULTS: 100/100

ECO203 Quiz3

Q A fixed exchange rate system is alleged to:
A be efficient

Q Which of the following would not be advised for a nation that has experienced difficulty in controlling inflation?
A Contractionary monetary policy.

Q Advocates of fixed exchange rates claim that flexible exchange rates:
A are inflationary

Q The equilibrium level of national income in an open economy is given by:
A I + (X-M) = S

Q What is the correct order of events following an expansionary monetary policy with a flexible exchange rate?
A Interest rate falls, investment and income rise, current account worsens

Q An alleged advantage of flexible over fixed exchange rates is:
A market efficiency

Q When demand is unitary elastic, a change in price will leave expenditures on the commodity___________.
A unchanged

Q To correct a recession and a balance of payments surplus a nation requires:
A expansionary fiscal and monetary policy and either a revaluation or a devaluation

Q Discuss which of the following are international economic problems facing the world today.
A All of the listed choices

Q Under a managed floating exchange rate system, the nation's monetary authorities are entrusted with the responsibility of intervening in foreign exchange markets to smooth out ______ without attempting to affect their ______.
A short run fluctuations in exchange rate, long run trend

Q The equilibrium level of national income in the economy is where _______________.
A leakages = injections

Q A country with budget deficit which is also at full employment can improve its deficit situation by allowing its currency to depreciate, only if,
A the real domestic absorption is reduced

Q To avoid or minimize international financial crises in the future, the IMF is taking which of the following measures?
A Strengthening emerging markets' banking and financial systems

Q If ηM = -0.85 and ηX = -0.62 , then
A Foreign exchange market is stable

Q The system under which the exchange rate is always determined by the forces of demand and supply without any government intervention in foreign exchange markets is a(n):
A freely floating exchange rate system

Q Which of the following is concerned with equilibrating a nation's balance of payments?
A External balance

Q Which of the following is an example of a contractionary monetary policy?
A Decrease in the nation's money supply

Q The system under which exchange rates or par values are periodically changed to correct balance-of-payments disequilibria is known as a(n):
A adjustable peg system

Q To correct a recession and a balance of payments deficit a nation usually requires:
A expansionary fiscal and monetary policies and a devaluation

Q The price elasticity of the ______________ in euros is given by the percentage change in the quantity demanded of US exports by foreigners divided by the percentage change in the price of US exports in euros.
A foreign demand for US exports

RESULTS: 75/100

ECO203 Quiz2

Q Which of the following is true about PPP theory?
A The theory explains that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels

Q A nation's currency will appreciate if the nation's economy experiences which of the following?
A Economic growth

Q Trade cannot be an engine of growth for today's developing nations because:
A all of the listed choices

Q The foreign exchange market is:
A the framework for the exchange of one national currency for another

Q Which are is not an advantage of export-oriented industrialization?
A domestic industries grow accustomed to protection and have an incentive to become more efficient

Q Suppose that apples from Japan face a 15% tariff in Germany and a 20% tariff in Italy, while Germany and Italy maintain free trade between each other. Germany and Italy are therefore part of a(n):
A Free trade area

Q For most developing countries:
A agricultural goods and raw material tend to make up much of domestic output.

Q Compare the different types of economic integration, which of the following represents the loosest form of economic integration?
A Preferential trade arrangement

Q With free trade, the supply curve faced by a small importing country will be:
A upward sloping

Q A dynamic welfare gain resulting from the formation of a customs union would be:
A trade creation

Q Assume in base year 1990, the index for the volume of exports is equal to 100, and we find that, for the 2004 fiscal year, the US price index for exports has fallen 6 percent, the price index for imports has risen by 9 percent, and the index for the volume of exports is 108 for 2004. What is the value of the U.S. income terms of trade?
A The income terms of trade is I = [P(X)/P(M)]Q(X). Thus, after the change, the new scaled ratio is [94/109]108 = 93.1

Q Immizerising growth refers to a:
A a decrease in the welfare of a nation with growth

Q ____________ are balance of payments transactions involving payments to foreigners.
A Debit transactions

Q Which of the following is an example of a capital inflow for the US?
A A domestic increase of assets held by foreign investors

Q Which of the following is not included in the current account?
A Currently produced goods and services

Q If the sport rate for Euro is $1.32/€ and the 90 day forward rate is $1.44/€ then the forward rate carries how much forward premium or discount?
A Formula: [(Forward rate - spot rate)/spot rate] x (360/number of days in the contract) x 100
(1.44-1.32)/1.32X(360/90)X100
36.36% premium

Q A nation's currency will depreciate if the nation itself experiences which of the following?
A Economic growth

Q If Nation B is the source of all of Nation A's imports, then a customs union between Nations A and B will:
A Be trade creating.

Q An exchange rate is defined as:
A the domestic currency price of the foreign currency

Q Trade creation will ________________ for the domestic country.
A increase welfare

RESULTS: 75%

BUS203 Quiz2

Q Which of the following describe(s) the effect of a winding-up order? 
I.    All legal proceedings against the company may be stayed or halted.
II.   The court has the power to approve a list of contributories who are required to contribute assets to the company in the event of a winding-up.
III.  The directors cease to have the power of managing the company.
IV.  All contracts of employment between the company and its employees are halted.

A I, II, III and IV

Q A public debenture such as a bond involves ____________.

I.   a debt which has been offered for public purchase 
II. debentures which may be sold at a discount by the issuing company
III. interest that is payable by the issuing company, based on the face value of the debenture
IV. a redemption by the issuing company on the maturity date of the debenture

A I, II, III and IV

Q For take-overs relating to a public listed company on the Singapore Exchange, which of the following statutory and/or non-statutory rules would apply?

I.    Companies Act of Singapore
II.   The Singapore Code on Take-overs and Mergers
III.  The Singapore Exchange's Listing Manuals
IV.  The Securities and Futures Act of Singapore

A I and IV

Q Analyse the usual difference between equity financing and debt financing.

A In equity financing, a company would usually not have to make any repayments. In debt financing, a company would usually have to make repayments of principal, together with interest.

Q Generally, a prospectus must disclose all the information which ____________.

A investors and their professional advisers would reasonably require to make an informed assessment of an investment.

Q In the case of a winding-up by the court, the liquidator must _________ .

A apply to the court for an order of dissolution. Upon the grant of the order, the company is dissolved.

Q Which of the following best describes a floating charge?

I.   A security interest granted over a company's specific assets. The company can no longer sell those assets.
II.  A security interest granted over a company's assets generally. The company is able to use and sell those assets.
III. Upon the occurrence of certain specified events, the floating charge will crystallize and becomes fixed over specific assets.

A II and III

Q Which of the following best describes a scheme of arrangement?

A A company enters into an arrangement with its creditors to compromise its liabilities towards the creditors, with the approval of the court.

Q During the period of judicial management, there is a period of _________.

A court-ordered moratorium which prevents the creditors from taking legal action against the company.

Q Under the Companies Act of Singapore, fixed charges over certain assets must be registered. What is a consequence of failing to register such charges with the Accounting and Corporate Regulatory Authority of Singapore?

A If the charge is not registered, the lender cannot enforce his security against the liquidator or any other creditor of the company. The debt becomes unsecured.

Q There are two types of winding-up: _________ and _________.

A voluntary winding-up; winding-up by the court

Q In voluntary winding-up, _________ .

A the members of the company voluntarily decide to liquidate the company.

Q Which of the following is a criterion for a liquidator of a company, regardless of whether the liquidator is appointed by the court or by the members of the company?

A An approved company auditor who has been approved to act as a company liquidator

Q Which of the following best describes voluntary arrangement?

A An alternative to bankruptcy whereby the insolvent person is permitted to enter into voluntary arrangements with his creditors on rescheduling his payment of debts, wholly or partially.

Q A company which is already listed on the Singapore Exchange can raise fresh capital by ____________.

I.   issuing new shares via an initial public offering. 
II.  issuing additional shares through a placement 
III. issuing additional shares via a rights issue.

A II and III

Q If, despite undergoing a scheme of arrangement, receivership or judicial management, a company fails to overcome its insolvency, then it is likely that

A winding-up will follow and the company will be dissolved.

Q Which the following is/are power(s) of the liquidator?

I.   Bring or defend any legal proceedings against the company.
II.  Make compromises with any class of creditors.
III. Sell the assets of the company via public auction, public tender or private contract.
IV.  Appoint an agent to act on his behalf.

A I, II, III and IV

Q Under the Securities and Futures Act of Singapore, there are some exemptions when a prospectus is not required to be issued when the company is making an offer of securities. Which of the following illustrates such exemptions? 

I.    A private placement of securities to less than 50 persons within a 12-month period.
II.  Offers of securities where the total amount raised by the company is less than S$5 million over a 12-month period.
III. Offers of securities to "accredited investors", i.e, investors with a net worth of at least S$10 million.
IV.  An offer of securities made in connection with a take-over scheme.

A I, II, III and IV

Q What is a key objective of the regulatory framework relating to the capital market in Singapore?

A To maintain a capital market that is free from insider trading, deceptive behavior and market manipulation.

RESULTS: 95/100

BUS203 Quiz1

Q What is the difference between a sleeping partner and a salaried partner?
A A salaried partner is not a partner of the firm; he/she is merely given the title of partner for the purpose of dealing with third parties. A sleeping partner is a partner who is not engaged in the day-to-day activities of the firm

Q For foreign companies which wish to conduct business in Singapore, it can _________.
A register a branch in Singapore under the Companies Act (Cap. 50).

Q Which of the following best describes a limited partnership (LP)?
I.   There is a minimum of two partners.
II.  There are two types of partners in a LP: general and limited partners. 
III. All partners in a LP will have unlimited liability for the debts of the LP.

A I

Q Every member of a Singapore-incorporated company is entitled to certain fundamental rights as a member. Which of the following is not such a right? 

I.   To attend shareholders meetings.
II.  To speak at shareholders meetings. 
III. To obtain dividends from the company.
IV. To have a first right of subscribing for preference shares to be issued by the company.

A II and III

Q Which of the following does not describe a partnership?

A A partnership can be formed solely for volunteer and charitable purposes.

Q John, the Senior Vice President of a company has just completed negotiations with Supplier A over a contract. Supplier A assumes that John is duly authorized to sign the contract. On which of the following rules is Supplier A likely to rely on?

A Indoor management rule.

Q A partner who retires from a firm ____________.

A generally remains liable for the partnership debts incurred before his retirement.

Q Which of the following entities are not governed by the Companies Act (Cap. 50)? 

I.    Private limited companies which are incorporated in Singapore 
II.   Private limited companies in Singapore which are listed on an overseas stock exchange
III.  Foreign companies with only a registered branch in Singapore
IV. Foreign companies with no presence in Singapore

A IV only

Q A partnership can be automatically dissolved ____________.

I.    if the partners agree that it will be dissolved upon the bankruptcy of one of their partners 
II.   upon the occurrence of an event which renders the partnership business illegal
III.  if the court decrees it because the partnership business can only be continued at a loss

A I, II and III

Q A person can be added as a new partner to the partnership so long as ____________.

A the existing partners agree.

Q At law, incorporation creates "personhood". Which of the following is not a feature of "personhood"?

I.   Being able to own property in its own name
II.  Capable of suing third parties in its own name
III. Ceasing to exist if its shareholders change
IV. Its members are not responsible for its debts

A III only

Q Upon winding-up of a company limited by guarantee, its members are liable _________.

A to the extent of the fixed amount stated in the company's memorandum

Q Which is the regulatory body that is responsible for companies that are incorporated under the laws of Singapore?

A Accounting and Corporate Regulatory Authority

Q A company secretary for a private limited company in Singapore must possess certain pre-requisite qualifications. Which of the following is not an appropriate example of such qualifications?

A A person who resides in Singapore and is always present at the company's registered office.

Q If you wish to start a very simple push-cart business but are not concerned about incurring personal liability in the course of the business, which of the following would be more appropriate for you?

A Being the sole proprietor in a sole proprietorship

Q In which of the following situations would the corporate veil be lifted?

I.    the company had a debt which was intentionally created by a company officer who, at that time, had no reason to believe that the company could pay the debt. 
II.   there was substantial wrong-doing or fraudulent act committed by the company and it can be attributed to one or more members.
III.  the shareholders pass a resolution to this effect.

A I and II

Q In its report dated 29 November 2011, the Steering Committee for the Review of the Companies Act proposed that a dormant company _________.

A which owns less than S$500,000 in property and is not a listed company need not prepare accounts at all.

Q If the company acts beyond its objects stated in the _________, such an act is considered _________ .

A memorandum of association; ultra vires

Q Under the proposed amendments to the Companies Act (Cap. 50) in 2012, which documents are to be replaced with a new document known as the "constitution" of the company?

A Memorandum of Association and Articles of Association

Q Sue is a partner in a newly established partnership which deals in interior design. The partnership bought an apartment near the office and a truck. In which of the situations is there an inappropriate use of the apartment or the truck?

I.   The partnership is expecting some China-based customers to fly into Singapore to negotiate the terms of a project. Sue has invited them to stay at the apartment. 
II.  Sue is moving house. She has asked the driver of the truck to load her furniture into the truck and send the furniture to her new home.
III. As part of their holiday in Asia, some of Sue's friends from America would like to come to Singapore. Sue has invited them to stay at the apartment.

A II and III

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RESULTS: 90/100 NOT BAD FOR NOT READING MY NOTES. 

ECO203 Quiz1

Q The change in welfare attributed to the terms of trade effect, when considered independently of changes in welfare associated with the decline in trade volume, will:
A reduce the nation's welfare

Q 
A Country A has comparative advantage in apples

Q The reduction in the price of the import commodity that results when a large nation imposes an import tariff is attributed to the ____________ and constitutes a __________ of welfare for the nation.
A terms of trade effect, gain

Q With free trade, the small nation will import all its commodities at what price level?
A the world market price

Q The difference between what consumers would be willing to pay for each unit of commodity and what they actually pay for that unit is called ____________.
A consumer surplus

Q The increase in consumption in each nation resulting from specialization in production and trading is referred to as:
A gains from trade

Q If a nation imposes a quota and the licenses to import are auctioned off to domestic importers then:
A The revenue effect of the quota and a tariff will be identical

Q If import-competing firms expect the income of domestic consumers to increase and they also the demand for their product to increase they would prefer:
A Free trade.

Q When the amount of a commodity that must be given up to produce each additional unit of another commodity, regardless of the amount of the commodity foregone, is the same at every level of production, which of the following exists?
A constant opportunity costs

Q With ______________, inputs increase proportionately more than the increase in output.
A Decreasing returns to scale

Q When a specific tariff is used instead of an ad valorem tariff:
A cheaper goods enjoy a greater degree of protection than higher priced goods

Q Community indifference curves are __________________ sloped and _____________ to the origin.
A negatively, convex

Q Given that the imposition of a tariff will improve the welfare of a large nation, which of the following is true?
A The large nation's gains results in its trading partners' losses

Q Which of the following statement regarding international trade is correct?
A International trade acts as a substitute for the international mobility of factors of production in its effect on factor prices

Q If the infant-industry argument is valid then evaluate which of the following is a better policy.
A Subsidization of the infant industry

Q 
A Neither

Q A(n) __________ is a tax or duty levied on the traded commodity as it enters a nation.
A import tariff

Q According to the Heckscher-Ohlin theory, nations heavily endowed with labor will:
A export more labor intensive goods.

Q Relative prices are different for each nation because their production frontiers and indifference curves differ in _______________.
A shape and location

Q Compare the effects of tariff and quota, if the objective is to restrict the quantity of import, then
A quota is more effective than tariff

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GOT 90 / 100 ON FIRST TRY. AMAZING~

ECO201-3 First Try

Q To say that a particular good is non rival means that
A consumption of the good by one person reduces the availability of the good to others.

Q The pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure, is called
A Adverse selection.

Q 

A dominated; dominated

Q One of the most efficient methods for dealing with the natural monopoly for fire protection is

A All of the listed choices

Q One implication of the lemons model as applied to the used car market is that

A a car with a price equal to its blue book value, without additional information, is likely to be a below average quality car.

Q A state-owned natural monopoly will have

A no incentive to minimize cost

Q A feature of natural monopoly is economies of scale in production, which means

A marginal cost will always be less than average total cost

Q Some people reduce their effort prevent their insured goods from being damaged or stolen. This behavior is known as

A risk aversion

Q If both Macy and Gimble charge a high price, they each earn $200. If they both charge a low price, they each earn $100. If one charges a low price and the other a high price, the one who charges a low price will capture much of the market and earn $300, leaving the other with only $75. Which statement(s) is(are) correct regarding this situation?

I. Charging a high price is a dominant strategy for both.
II. This is a prisoners' dilemma in which both will end up earning less than they could if they successfully cooperated.
III. For maximum profit, these two sellers should cooperate, one charging a high price and the other charging a low price.

A II only is correct.

Q There are 1,000 houses in Ardmore Park. Each house costs $300,000 and 1 percent of the houses are likely to be wiped out by floods and landslides. Scott Klein, an enterprising college graduate is considering starting an insurance agency to offer flood insurance policies. The policy will pay 60 percent of the purchase price of $300,000 if a homeowner's house is wiped out. Scott plans to charge an insurance premium of $80,000 per house. Suppose homeowners know with certainty which homes will be wiped out. Suppose Scott has no explicit costs other than paying claims filed by homeowners, what is his accounting profit? For simplicity, assume that homeowners are risk neutral.

A He will not be in business because no one will purchase insurance.

Q To derive the market demand curve for a private good one sums the __________. For a public good, one sums the __________.

A individual quantities at various prices; individual prices at various quantities

Q A good or service that is both highly nonrival and highly nonexcludable is termed a(n)

A pure public good.

Q Which one of the following policies mitigates the negative effects of moral hazard?

A Policies with large deductible provisions

Q Two firms produce homogeneous products, set price simultaneously, and end up in a Nash equilibrium in which price is equal to the competitive price. Which of the following describes this situation?

A Bertrand homogeneous duopoly.

Q 

A A Nash equilibrium with both players choosing strategy Z.

Q 

A prisoner's dilemma because playing their dominated strategies would increase the players' payoffs.

Q Asymmetric information exists when

A the seller knows more than the buyer.

Q Consider the following worker compensation schemes: 

I. a flat salary, 
II. seniority system, and 
III. a profit sharing scheme. 
Which scheme(s) is(are) likely to provide some control over managers who are the agents in an agency relationship with shareholders?

A III only

Q Which statement(s) is (are) correct regarding collusion?

I. Both tacit and explicit collusion are expressly prohibited by the Sherman Act.
II. The greater the number of firms, the harder it becomes to sustain collusion.
III. Collusive agreements tend to be easier to maintain if firms can monitor their rivals' prices only imperfectly.

A II only

Q The demand curve for public goods is constructed by

A summing each voter's reservation price for a given level of public good.

RESULTS: 65/100