Learning by Doing:Multiple Choice Q & AApril 26, 2013
Announcements (1/3)• Practice questions for the midterm (weekfrom today!) are now posted on website.– Do not need to be ``passed in.”• Denise will go over ``Old Exam 1 – Old Exam4” in Mon and Wed Sections• Jake will do a midterm review Wed night andgo 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, May3, 3pm sharp.-10% Deduction if you are 1 second late.-100% deduction if you arrive after someoneelse finishes and leaves room.(2) No leaving room during exam (it’s less than anhour).
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, butindividual only pays attention to MR=ATC.
Today• Will do practice multiple choice questionstogether• Three goals:– (1) Understand where the class is at– (2) Refresh understanding of different sectionsand bring together– (3) Practice sequential elimination of bogusanswers
1. The concept of efficiency is NEVER based onwhich of the following predetermined attributesof buyers and sellers?A. Buyers’ income.B. Technology.C. Individual worker abilities.D. Policies that will most quickly increase incomesfor those in poverty.E. Buyers’ tastes.
2. When compared with a puremonopoly, price discriminationA. reduces total surplusB. increases or keeps constant surplus to sellers and to society as awhole but never increases buyers’ surplus.C. increases or keeps constant surplus to buyers and to society as awhole but never increases sellers’ surplus.D. always increases total surplusE. increases or keeps constant surplus to buyers and to society as awhole and sometimes increases sellers’ surplus.
3. Economists consider monopolies sociallyundesirable because a monopolistA. 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 featureof a natural monopoly. This means thatA. 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 variablecost
5. Game theory is useful in studying imperfectcompetition because, unlike the previous tools, itincorporatesA. profit maximizationB. more than one goodC. timeD. utility maximizationE. interdependency
6. Suppose that two players cannot achieve anoptimal outcome because neither is credible. This isan example ofA. the prisoner’s dilemmaB. a commitment problemC. a dominant strategyD. a Nash equilibriumE. a payoff
7. Using psychological incentives to solve acommitment problem will not be very effective in agame that is playedA. repeatedly between two strangersB. only once between two family members who live in thesame homeC. only once between two strangersD. repeatedly between two family members who live inthe same home.E. Repeatedly between friends who live together
8. Which of the following factors would make it easierto 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 thecosts of negotiating a solutionC. The gains from reducing the externality are large compared to thecosts of negotiating a solutionD. The people involved cannot monitor each others’ actions to ensurethey obey an agreement.E. None of the above.
9. Most states require public school districts to offerkindergarten to young children. If there is a belief thatattending kindergarten generates an externality, this mandateis an example ofA. intrusive state governmental mandatesB. a legal remedy for an externalityC. a private solution for an externality, as suggested by theCoase theoremD. a government solution of an externality along the lines ofthe Coase theoremE. an external benefit
10. Positional externalitiesA. only occur in professional sportsB. arise in situations where absolute performance is thecriteria for success.C. cause people to invest too little in performanceenhancementD. arise when an increase in one person’s performancereduces 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 ofexclusive contracting for a natural monopoly?A. Municipal garbage collection through a singleprivate 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 bya fixed amount.B. insuring that the firm charges a price equal to its explicitcosts of production plus a markup to cover implicitcosts.C. granting the firm a patentD. keeping other firms from enteringE. creating a government-owned corporation.
16. A compensating subsidy used to rectify an externalbenefit from consuming a good willA. cause the supply curve to shift up and reduce the quantity ofthe good producedB. cause the demand curve to shift up and increase thequantity of the good producedC. cause the supply curve to shift down and increase thequantity of the good producedD. cause the demand curve to shift down and decrease thequantity of the good producedE. have no effect on the quantity of the good produced