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
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.
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?
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 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
