4. The chance of a cooperative outcome in a game is reduced if a) the one-time gain from cheating is significant compared to the cost of cheating b) player interaction is not frequent c) players are impatient d) all of the above

5. In the Cournot model, the curve that traces out the relationship between the market price and a firm's quantity when rival firms hold their outputs fixed is called a a) reaction function b) best response c) residual demand curve d) cournot equilibrium

6.Suppose in a Cournot duopoly that two firms, Firm 1 and Firm 2, face market demand and both have marginal cost, . Firm 1's reaction function can be written as: a) Q1=45-0.5Q2 b) Q1=25-0.5Q2 c) Q1=15-0.5Q2 d) Q1=10-0.5Q2

7. Bertrand duopolists, Firm 1 and Firm 2, face inverse market demand and both have marginal cost, . The equilibrium output this market will be: a) 15 b) 20 c) 30 d) 40 8. Stackelberg duopolists, Firm 1 and Firm 2, face inverse market demand . Both have marginal cost, . If the follower takes the leader's output as fixed at Q1, what is the equation of its reaction function? a) 30-Q1=Q2 b) 15-Q1=Q2 c) 15-2Q1=Q2 d) 15-Q1/2=Q2

8. Stackelberg duopolists, Firm 1 and Firm 2, face inverse market demand P=50-Q. Both have marginal cost, MC=$20. If the follower takes the leader's output as fixed at Q1, what is the equation of its reaction function?

a) 30-Q_1=Q_2

b) 15-Q_1=Q_2

c) 15-2Q_1=Q_2

d) 15-Q_1/2=Q_2

9. What of the following is completely true in long run, monopolistically competitive equilibrium?

a) the slope of the demand and average cost curves are the same, P = MC, and MC = MR.

b) the slope of the demand and average cost curves are negative, P > MC, and MC > MR

c) the slope of the demand and average cost curves are positive, P > MC, and MC = MR

d) the slope of the demand and average cost curves are the same, P > MC, and MC = MR.

10. Which of the following is not a characteristic of monopolistic competition?

a) The market is fragmented.

b) There is free entry and exit.

c) In the long-run equilibrium, firms earn positive profits.

d) Firms produce horizontally differentiated products

18. Cost-benefit analysis is superior to majority voting as a decision tool for public policy because it

a.requires that people have single-peaked preference patterns.

b.solves the median voter problem but not the agenda manipulation concerns.

c.does not require that policy makers know the preferences of the citizens.

d.measures the intensity of the citizens' feelings on an issue.

19. The "veil of ignorance" described by John Rawls leads to qualifications of marginal productivity theory. The main policy conclusion of Rawlsian thinking is that

a.a society should socialize its citizens in ways that will teach them to work for non-material rewards.

b.public goods should be provided in greater quantity to all citizens.

c.additional inequality will only be justified if it has the effect of raising everyone's income.

d.there should be an upper limit on income beyond which a 100% tax rate would apply.

20. Marginal productivity theory

a.asserts that each input into production will get the value of its marginal product in competitive markets.

b.claims that the value of the marginal product of all inputs is equal to the total product generated.

c.provides incentive to produce and take risks.

d.does not insure against wide variation in income distribution.

e.is described in part by all the above.

21. Income redistribution can be justified on practical grounds because

a.poor people have a higher effective demand for public goods than do rich people.

b.the rich are made better off if the poor remain as part of society since relative income standing is important. Therefore, they should be willing to compensate the poor in order to maintain social cohesion.

c.the rich spend on more socially undesirable goods than do the poor.

d.of all of the above.

22. In order for economic efficiency to hold true, the following condition(s) must be satisfied:

a) input efficiency

b) substitution efficiency

c) exchange efficiency

d) all of the above

23. The "invisible hand" of Adam Smith's markets could be restated in our terms by saying that

a.equilibrium will occur in all markets.

b.people will be guided by the market to their optimal happiness.

c.competitive market equilibrium brings Pareto preferred moves but not necessarily Pareto optimal moves.

d.competitive market equilibrium will be Pareto optimal.

24. Suppose that Bill, George, and Al constitute the entire market for consumers of national defense. Each man has an identical demand curve for national defense, which can be expressed as . Suppose that the marginal cost for national defense can be expressed as . What is the optimal quantity of national defense?

a) 150 units.

b) 60 units

c) 40 units.

d) 20 units.

25. The significance of the First Fundamental Theorem of Welfare Economics is that:

a)even if the economy is in competitive general equilibrium, significant intervention will be

required to bring about economic efficiency.

b)there is a possibility that an economy could simultaneously attain an efficient allocation and one in which the resulting distribution of utility is in some sense equitable.

c)Even though households and firms behave independently and each pursues its own self-interest, the resulting equilibrium is efficient in the sense that it exploits all possible mutually beneficial gains from trade or from reallocation of inputs.

d)resources are scarce in the economy and so must be managed for the long term.

26. The poverty line in the country of Abbyville is $15,000. The distribution of income for

Abbyville is as follows:

Number of Families

Income

300

less than $15,000

500

between $15,000 and $20,000

900

between $20,000 and $25,000

600

between $25,000 and $30,000

200

over $30,000

The poverty rate in Abbyville is

a.

12 percent.

b.

32 percent.

c.

50 percent.

d.

68 percent.

30.Which political philosophy believes that the government should equalize the incomes of all members of society?

a.

Utilitarianism.

b.

Liberalism.

c.

Libertarianism.

d.

None of the above is correct.