Q Tim and Larry are both thrill seekers. Tim has health insurance and Larry does not. One can predict that
A Larry will engage in fewer dangerous activities.
Q A state-owned natural monopoly will have
A no incentive to minimize cost
Q Adverse selection in the labor market refers to a situation where
A employers are able to observe certain qualities of potential workers and can decide on the basis of those qualities whether or not to hire that person.
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 Government regulators in Idaho set the price of electricity based on the explicit costs of the Electric Power company, then add an extra amount to assure a normal return of the firm's investment. This procedure is called
A cost-plus regulation.
Q Moral hazard occurs when a person's behavior changes in ways that
A increases the likelihood of an unfavorable outcome
Q The demand curve for public goods is constructed by
A summing each voter's reservation price for a given level of public good.
Q Games in which players find that playing their dominant strategies results in a lower payoff than playing their dominated strategies is called
A the prisoner's dilemma.
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 Which one of the following policies mitigates the negative effects of moral hazard?
A Policies with large deductible provisions.
Q A good or service that is both highly nonrival and highly nonexcludable is termed a(n)
A pure public good.
Q The games where playing the dominant strategies leads to a less desirable equilibrium is refer to as
A prisoner's dilemma.
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 One of the most efficient methods for dealing with the natural monopoly for fire protection is
A All of the listed choices
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.
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?
A Larry will engage in fewer dangerous activities.
Q A state-owned natural monopoly will have
A no incentive to minimize cost
Q Adverse selection in the labor market refers to a situation where
A employers are able to observe certain qualities of potential workers and can decide on the basis of those qualities whether or not to hire that person.
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 Government regulators in Idaho set the price of electricity based on the explicit costs of the Electric Power company, then add an extra amount to assure a normal return of the firm's investment. This procedure is called
A cost-plus regulation.
Q Moral hazard occurs when a person's behavior changes in ways that
A increases the likelihood of an unfavorable outcome
Q The demand curve for public goods is constructed by
A summing each voter's reservation price for a given level of public good.
Q Games in which players find that playing their dominant strategies results in a lower payoff than playing their dominated strategies is called
A the prisoner's dilemma.
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 Which one of the following policies mitigates the negative effects of moral hazard?
A Policies with large deductible provisions.
Q A good or service that is both highly nonrival and highly nonexcludable is termed a(n)
A pure public good.
Q The games where playing the dominant strategies leads to a less desirable equilibrium is refer to as
A prisoner's dilemma.
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 One of the most efficient methods for dealing with the natural monopoly for fire protection is
A All of the listed choices
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 None of the statements is correct.
Q This formula gives the most profitable quantity for firm A to produce, given the quantity produced by firm B. It is called_____
A A's best response function.
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 I only is correct.
Q The government subsidizes public television and private companies own networks like CBS, ABC and NBC. From this you can infer that
A public television broadcasts are public goods while broadcasts from the private networks are private goods.
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 of the following is not true of a Nash equilibrium in a game involving players A and B?
A Both players must have dominant strategies.
RESULTS: 70/100
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