Sample 2nd midterm Key 1 A consumer is likely to his opportunity costs when A undervalue they are not right in front of him B undervalue they are obvious C overvalue they are not obvious D overvalue they are right in front of him Learning Objective 08 03 Identify the types of opportunity cost that people often undervalue and explain why undervaluing them distorts decision making Topic Undervaluing Opportunity Costs 2 A natural monopoly is a market in which a single firm A can produce at a lower cost than multiple firms the entire quantity of output demanded B owns a key resource or input into the production of the good C is protected from competition through government legislation D gains market share over time through aggressive tactics Learning Objective 14 01 List several reasons that monopolies exist and explain how each causes barriers to entry Topic Monopolies 3 A landlord requiring potential tenants to provide a rental history is an example of A building a reputation B signaling C statistical discrimination D screening Learning Objective 10 04 Differentiate between screening and signaling and describe some applications of each Topic Solutions to Information Asymmetry 4 When people change their minds about what they want simply because of the timing of the decision economists refer to it as A time inconsistency B information overload paradox C cost price inconsistency D time barriers to optimization Learning Objective 08 01 Define time inconsistency and explain how it accounts for procrastination and other problems with self control Topic Time Inconsistency 5 Risk diversification refers to the process by which A people organize themselves in a group to collectively absorb the cost of the risk faced by each individual B risks are shared across many different assets or people reducing the impact of any particular risk on any one individual C insurance companies change the risk aversion of their clients D insurance companies reallocate the likelihood of catastrophes happening Learning Objective 11 06 Explain the importance of pooling and diversification for managing risk Topic Insurance and Managing Risk 6 The practice of charging customers different prices for the same good is called A price discrimination B price marking C group discounting D customer discrimination Learning Objective 14 06 Explain why a firm has an incentive to use price discrimination when possible Topic Price Discrimination 7 Perfectly competitive markets A are more an idealized model economists use than a real life occurrence B are the most common type of market in the United States C tend to have relatively few buyers D tend to have relatively few sellers Learning Objective 13 01 Describe the characteristics of a perfectly competitive market Topic Perfectly Competitive Markets 8 is about the number of firms and is about the variety of products A Monopolistic competition oligopoly B Oligopoly monopolistic competition C Perfect competition monopoly D Monopoly oligopoly Learning Objective 15 01 Name the defining features of oligopoly and monopolistic competition Topic Imperfect Competition 9 The players of prisoner s dilemma type games A would be much better off if they could cooperate B have an incentive to never cooperate C have a dominant strategy to never cooperate D All of these statements are true Learning Objective 09 02 Explain why noncooperation is a dominant strategy in the prisoners dilemma Topic Prisoners Dilemma 10 Information asymmetry is a problem when A a buyer and seller have opposing incentives B a buyer and seller have aligned incentives C a market is highly efficient D a market is highly inefficient Learning Objective 10 01 Define information asymmetry and explain why it matters for economic decision making Topic Asymmetric Information 11 When shopping for a ticket to see One Direction her favorite band in concert Annie mistakenly purchased a ticket to the off off off Broadway play One Dissection which she has no interest in seeing Because the ticket cost her 100 Annie decides to think about it A irrationally and skips the play and spends another 100 on the concert ticket B rationally and sits through the play she has the ticket for which is as awful as she thought it might be C rationally and skips the play and spends another 100 on the concert ticket D None of these is a possible outcome Learning Objective 08 02 Explain why sunk costs should not be taken into account in deciding what to do next Topic Ignoring Sunk Costs 12 Statistical discrimination is when you take action to A reveal private information about someone else B reveal one s own private information C find out the opportunity cost of acquiring more information D fill gaps in your information by generalizing based on observable characteristics Learning Objective 10 06 Explain how statistical discrimination might be used to solve information problems Topic Solutions to Information Asymmetry 13 A game with a first mover advantage is one in which A the player who chooses first gets a higher payoff than those who follow B the player who chooses first gets to decide if a repeated game will start with cooperation from the beginning C the first player to move determines the payoffs for the rest of the game D None of these statements is true Learning Objective 09 06 Define first mover advantage and identify it in practice Topic First Mover Advantage 14 Imagine Tom s annual salary as an assistant store manager is 30 000 he owns a building that rents for 10 000 yearly and his financial assets generate 1 000 per year in interest One day after deciding to be his own boss he quits his job evicts his tenants and uses his financial assets to establish a bicycle repair shop To run the business he outlays 15 000 in cash to cover all the costs involved with running the business and earns revenues of 50 000 Has Tom made the best decision A Yes because he s earning an accounting profit of 35 000 B No because he s earning an economic profit of 6 000 C Yes because his accounting profit is larger than his economic profit D No because his accounting profit is larger than his economic profit Learning Objective 12 04 Calculate economic and accounting profit and explain the importance of the difference Topic Accounting versus Economic Profits 15 In general people are willing to pay more than the expected value of insurance because A they are risk averse enough to want protection against very large expenses B the extra amount represents the value of
View Full Document
Unlocking...