Econ Final Practice Questions – Flashcards

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Game theory is the study of ___.
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strategic interactions
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In a simultaneous move game, ___.
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each player has to make his choice without knowing his rival's choice
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A dominant strategy ___.
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results in a higher payoff irrespective of the strategy chosen by the other player
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In a zero-sum game, ___.
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one player's loss is another player's gain
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Which of the following is true of an extensive-form game?
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it involves sequential decision making by the players
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The first mover in an extensive-form game should use ________ to win the game.
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backward induction
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Goods that are similar but are not perfect substitutes are called ________ goods.
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differentiated
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________ is the market structure in which there are many rival firms producing differentiated products.
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monopolistic competition
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Which of the following is a feature of an oligopoly market?
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each firm's action affects the decisions of its rival
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In a duopoly with homogeneous products, the best response of a firm is to charge a lower price than his rival as long as ________.
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the rival's price is above marginal cost
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Firms in an oligopoly often do not collude with each other because ________.
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collusion is illegal
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The price charged by a monopolistic competitor is ________.
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higher than the marginal cost of production
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Total surplus is maximized in a(n) ________.
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perfectly competitive market
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Oligopolists merge to ________.
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increase market power
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An industry is deemed concentrated when ________.
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a few firms account for a large fraction of total sales in that industry
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There are four firms in the cement industry in Richland. Firm A has a market share of 30%, Firm B has a market share of 20%, Firm C has a market share of 25%, and Firm D has a market share of 25%. The Herfindahl-Hirschman Index for the cement industry is ________.
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2,550
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Which branch of economics considers that economic agents do not always act rationally?
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behavioral economics
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Jack refused to contribute money for building a public park when he was contacted individually. However, he readily agreed to donate when he was asked to contribute for a similar cause in front of his neighbors. Such behavior is an example of ________.
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impure altruism
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Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money.This is an example of a(n) ________.
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ultimatum game
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The reservation value of a seller reflects her ________.
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marginal cost
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When buyers and sellers optimize in a perfectly competitive market, ________.
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social surplus is maximized
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The entry of new firms into a perfectly competitive market will cause:
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a decrease in the profitability of existing firms
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If prices are held below the equilibrium price:
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there exists a shortage in the market
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________ is concerned with the distribution of resources across society.
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equity
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Which of the following best describes a command economy?
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an economy where strong controls are imposed by the ruling authority
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A production possibilities curve shows the relationship between:
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the maximum production of one good for a given level of production of another good
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Specialization occurs when each individual, firm, or country:
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produces only a few specific goods and relies on trade for the other goods and services it needs
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Traffic congestion is an example of a ________.
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negative externality
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If negative externalities are present in a market, ________.
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the quantity supplied in the market is larger than the socially optimal level
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Deadweight loss refers to the loss in ________.
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total surplus due to a market distortion such as an externality
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The Coase Theorem states that ________.
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negotiation between economic agents leads to an efficient allocation of resources
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Public goods are ________ in consumption.
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non-excludable and non-rival
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The free-rider problem exists for goods that are ________.
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non-excludable
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Overfishing leading to a rapid depletion of the stock of fish is an example of ________.
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the tragedy of the commons
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In a progressive tax system, ________.
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the marginal tax rate exceeds the average tax rate
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The incidence of a per-unit tax on a good is identical for buyers and sellers of the good if:
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the buyers and sellers of the good are equally sensitive to price changes
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Compared to a firm under perfect competition, a monopolist:
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charges more and produces less
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The price effect of a price decrease by a monopolist refers to:
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the loss in revenue due to the price reduction.
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Which of the following statements explains why monopolies weaken the functioning of the invisible hand?
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the quantity produced by a monopoly is too low
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Randomization is the assignment of subjects by ________ to a ________.
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chance, rather than by choice; treatment group or into a control group
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John has to choose between a camping holiday and a holiday in Las Vegas. If he evaluates the total net benefit of both alternatives before coming to a decision, he is using the technique of:
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optimization in levels
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Gary has to decide between attending a two-day art workshop and a four-day art workshop. If he evaluates only the change in net benefit when he switches between the two options, he is using the technique of:
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optimization in differences
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The techniques of optimization in levels and optimization in differences:
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provide identical answers when comparing the same set of alternatives
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Total cost falls when marginal cost is ________, and total cost rises when marginal cost is ________.
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negative; positive
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Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will:
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lose almost all of his buyers
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The Law of Demand states that:
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the quantity demanded of a commodity varies inversely with the price of the commodity
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Which of the following pairs of goods are likely to be considered complements?
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pens and writing pads
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Which of the following is likely to cause the demand curve for cars to shift to the left?
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a rise in the price of gasoline
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Which of the following is likely to shift the market demand curve for school textbooks to the right?
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an increase in the enrollment rates in high schools
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A fall in the price of flour, used in making cakes, is likely to:
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increase the supply of cakes
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Other things remaining the same, a right shift in the supply curve will lead to:
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a decrease in the equilibrium price and an increase in the equilibrium quantity
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If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by:
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the same price and a lower quantity
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A price ceiling imposed by the government:
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can create situations of excess demand
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A budget constraint is a straight line because:
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a consumer faces a fixed price of both goods that do not change with changes in consumption
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While making a purchase decision using marginal thinking, a buyer should buy the good that yields the:
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highest marginal benefit per dollar spent
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The general rule for welfare maximization suggests that in personal equilibrium:
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the ratio of marginal benefits to price should be identical across all goods
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________ is the difference between the willingness to pay and the price paid for a good.
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consumer surplus
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If the price of a good increases, ________.
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the consumer surplus decreases
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Elasticity is:
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the ratio of the percentage change in two variables
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Negative values of the price elasticity of demand of a good can be attributed to:
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the Law of Demand
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If a good has a price elasticity of demand equal to 0, ________.
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the quantity demanded is completely unaffected by a change in its price
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If a good has a price elasticity of demand of -3, it implies that:
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if the price of the good increases by 1%, the quantity demanded of the good will decrease by 3%
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Which of the following pairs of goods has a negative cross-price elasticity?
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pens and paper notebooks
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Which of the following statements is true about the income elasticity of demand?
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increase in the price of the good will increase the firm's revenue
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Which of the following examples best describes the concept of free entry?
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Jack has an old cell phone that he wants to sell. He opens an account on eBay and auctions it off
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Net benefits of sellers represent their:
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profits
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The Law of Diminishing Marginal Returns states that:
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successive increases in inputs eventually lead to less additional output
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________ are costs that, once committed, can never be recovered and should not affect current and future production costs.
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sunk costs
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In the long run, a firm should exit when:
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price is less than average total cost
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Entry of new firms into an existing market causes:
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a rightward shift of the market supply curve
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In the long run, under perfect competition:
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firms earn zero economic profit because of free entry and exit of firms
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A ________ is a payment or a tax break used as an incentive for an agent to complete an activity.
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subsidy
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