1. All of the following are true, except

a.

Some consumers may infer high quality from high price

b.

Low prices can indicate lower quality given that no other information is available

c.

Promotional campaigns do not affect consumer's perception on quality

d.

It makes more sense to raise price when advertising makes demand less elastic

2.Which of the following is not an example of price discrimination?

a.

Senior citizen discount at the movies

b.

Grocery coupons

c.

Shipping a package further costs more

d.

Charging a higher price for ice-cream during the summer and a lower price in the winter

3. Metering is

a.

A form of indirect price discrimination

b.

A form of direct price discrimination

c.

An evaluation of a product

d.

An example of bundling

4.

Consider the following information for a simultaneous move game:If you charge a low price (LP) and your rival charges a LP, you each earn $5 million in profits.If both charge a high price (HP), each will each earn $10 million in profits.However, if one charge a LP and the other does not, the firm that charges a LP will earn $15 million and the other firm will earn $1 million.

What is the Nash equilibrium of the game?

a.

Each firm charges a LP

b.

Each firm charges a HP

c.

You charge a LP and your rival charges a HP

d.

None of the above

5.

Firm B Low Price High Price

Firm A Low Price 0, 0 50, -10

High Price -10, 50 25, 25

What is the payoff for each firm in this simultaneous game?

a.

Both firms will earn 0

b.

Firm A will earn 50 and firm B will earn -10

c.

Firm A will earn -10 and firm B will earn 50

d.

Both firms will earn 25

Bottom of Form

6.

Consider a sequential game between a shopkeeper and a haggling customer. The party who moves first chooses either a high price ($50) or low price ($20) and the second mover either agrees to the price or walks away from the deal and neither party gets anything. Ignore costs and assume the customer values the item at $60.

This sequential game illustrates a

a.

Third mover advantage

b.

Second mover advantage

c.

First mover advantage

d.

No advantage based on moves

7. A second-price auction

a.

is also called a Vickrey auction

b.

is conducted by bidders submitting a single sealed bid

c.

is where the highest bidder wins and pays the amount of the next highest bid

d.

all of the above

8. The difference between moral hazard and adverse selection is

a.

moral hazard has to do with unobservable characteristics of individuals

b.

moral hazard has to do with unobservable actions of individuals

c.

adverse selection is when individuals change their behaviors because of a contract

d.

adverse selection is when you choose the wrong answer on a test

9. Adverse selection is a

a.

Pre-contractual problem

b.

Post contractual problem

c.

Post firing problem

d.

None of the above

10. Consider an apple orchard owner deciding how to incentivize his fruit pickers. He pays per pound harvested but adjusts the compensation rate higher during poor harvest seasons. As a consequence

a.

The compensation rate should be fixed at all times

b.

The pickers might try to game the system by discouraging others from harvesting too much

c.

The pickers would claim good harvests in order to be paid higher piece rates even during poor harvest seasons

d.

None of the above