Question 1

When players in a game collude, they:

Accepted Answer

A) choose to avoid any outcomes that harm their rival. 
B) make agreements not to compete with each other and, typically, to charge high prices. 
C) act independently to try to eliminate other players from the game. 
D) change their products, so that they are in different markets and not competing with each other. 
A) choose to avoid any outcomes that harm their rival. 
B) make agreements not to compete with each other and, typically, to charge high prices. 
C) act independently to try to eliminate other players from the game. 
D) change their products, so that they are in different markets and not competing with each other.

Question 2

What type of game is played when each player must choose without knowing the other player's choice?

Accepted Answer

A) an anti-coordination game 
B) a forced-ignorance game 
C) a simultaneous game 
D) a one-shot game 
A) an anti-coordination game 
B) a forced-ignorance game 
C) a simultaneous game 
D) a one-shot game

Question 3

What advantage does a game tree have over a payoff table in presenting data for players in a game that plays out over time?

Accepted Answer

A) The game tree allows a player to see all options rather than just current options. 
B) The game tree shows only the options generating gain rather than all options. 
C) The game tree focuses on what the other player is most likely to do rather than on all options. 
D) The game tree allows a player to look forward and reason backward. 
A) The game tree allows a player to see all options rather than just current options. 
B) The game tree shows only the options generating gain rather than all options. 
C) The game tree focuses on what the other player is most likely to do rather than on all options. 
D) The game tree allows a player to look forward and reason backward.

Question 4

How common are strategic interactions and games in people's lives?

Accepted Answer

A) They are rare, occurring only a few times in a lifetime. 
B) They occur occasionally, perhaps every few years. 
C) They are somewhat frequent, occurring perhaps every six to 12 months. 
D) They are a pervasive part of life that occur daily or weekly. 
A) They are rare, occurring only a few times in a lifetime. 
B) They occur occasionally, perhaps every few years. 
C) They are somewhat frequent, occurring perhaps every six to 12 months. 
D) They are a pervasive part of life that occur daily or weekly.

Question 5

(Figure: Payoff Matrix for Blue Bottle and Opal Ocean) Use Figure: Payoff Matrix for Blue Bottle and Opal Ocean. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The Nash equilibrium occurs when Blue Bottle charges a _____ price and Opal Ocean charges a _____ price.
​

Accepted Answer

A) high; high 
B) low; low 
C) high; low 
D) low; high
​ 
A) high; high 
B) low; low 
C) high; low 
D) low; high
​

Question 6

Which of the following terms denotes a situation in which an individual's best choice may depend on what others choose, and others' best choice may depend on what the individual chooses?

Accepted Answer

A) comparative advantage 
B) strategic interaction 
C) coordination interaction 
D) partial equilibrium 
A) comparative advantage 
B) strategic interaction 
C) coordination interaction 
D) partial equilibrium

Question 7

(Figure: Oligopoly Pricing Strategy in Wireless TV Market I) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market I. If neither Spectrum nor Sling advertises, then without any collusion:
​

Accepted Answer

A) Spectrum will begin advertising to maximize profits. 
B) Sling will begin advertising to maximize profits. 
C) there will be no incentive for either Spectrum or Sling to begin advertising. 
D) there is an incentive for both Spectrum and Sling to begin advertising. 
A) Spectrum will begin advertising to maximize profits. 
B) Sling will begin advertising to maximize profits. 
C) there will be no incentive for either Spectrum or Sling to begin advertising. 
D) there is an incentive for both Spectrum and Sling to begin advertising.

Question 8

A situation with more than one equilibrium is called:

Accepted Answer

A) partial equilibrium. 
B) multiple equilibria. 
C) excess balance points. 
D) varied settlements. 
A) partial equilibrium. 
B) multiple equilibria. 
C) excess balance points. 
D) varied settlements.

Question 9

Use the table with data for Maria and Jose to answer the question.
If Maria charges $4, then Jose's best option would be to charge _____ in order to earn _____.
$\text { Table: Maria and Jose Produce Strawberry Jam }$
$\begin{array}{|l|l|l|}
\hline & {\begin{array}{c}
\text { Jose charges } \$ 8 \text { per } \
\text { jar. }
\end{array}} & \text { Jose charges } \$ 4 \text { per jar. } \
\hline \begin{array}{l}
\text { Maria charges } \$ 8 \text { per } \
\text { jar. }
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 200 \text {, and } \
\text { Jose earns } \$ 180 .
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 50 \text {, and } \
\text { Jose earns } \$ 280 .
\end{array} \
\hline \begin{array}{l}
\text { Maria charges } \$ 4 \text { per } \
\text { jar. }
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 300 \text {, and } \
\text { Jose earns } \$ 40 .
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 180 \text {, and } \
\text { Jose earns } \$ 150 .
\end{array} \
\hline
\end{array}$

Accepted Answer

A) $8; $180 
B) $8; $280 
C) $4; $40 
D) $4; $150 
A) $8; $180 
B) $8; $280 
C) $4; $40 
D) $4; $150

Question 10

(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The Nash equilibrium in the cable TV market occurs when:
​

Accepted Answer

A) both firms set a low price, and each earns $90,000. 
B) both firms set a high price, and each earns $100,000. 
C) Spectrum sets a high price and earns $80,000, and Sling sets a low price and earns $130,000. 
D) Spectrum sets a low price and earns $130,000, and Sling sets a high price and earns $80,000. 
A) both firms set a low price, and each earns $90,000. 
B) both firms set a high price, and each earns $100,000. 
C) Spectrum sets a high price and earns $80,000, and Sling sets a low price and earns $130,000. 
D) Spectrum sets a low price and earns $130,000, and Sling sets a high price and earns $80,000.

Question 11

(Figure: Payoff Matrix for the United States and Canada) Use Figure: Payoff Matrix for the United States and Canada. Suppose that the United States and Canada both produce quinoa, and each country can earn more profit if output is limited and the price of quinoa is high. The joint profit-maximizing combination is for the United States to produce a _____ output and Canada to produce a _____ output.
​

Accepted Answer

A) high; high 
B) high; low 
C) low; low 
D) low; high 
A) high; high 
B) high; low 
C) low; low 
D) low; high

Question 12

Firms will choose a Grim trigger strategy if they:

Accepted Answer

A) believe high profits are sustainable. 
B) believe that the firms in the industry will compete with each other for a long time to come. 
C) have little control over the market price. 
D) are sure that cheating behavior will go unnoticed. 
A) believe high profits are sustainable. 
B) believe that the firms in the industry will compete with each other for a long time to come. 
C) have little control over the market price. 
D) are sure that cheating behavior will go unnoticed.

Question 13

What is true about game trees and payoff tables?

Accepted Answer

A) A tree conveys less information than a payoff table. 
B) They cannot be used to portray the same types of games. 
C) They can convey the same information. 
D) A payoff table shows chains of events better than a game tree. 
A) A tree conveys less information than a payoff table. 
B) They cannot be used to portray the same types of games. 
C) They can convey the same information. 
D) A payoff table shows chains of events better than a game tree.

Question 14

Use the table with data for Maria and Jose to answer the question.
If Maria charges $8, the Jose should charge _____. If Maria charges $4, then Jose should charge _____.
$\text { Table: Maria and Jose Produce Strawberry Jam }$
$\begin{array}{|l|l|l|}
\hline & {\begin{array}{c}
\text { Jose charges } \$ 8 \text { per } \
\text { jar. }
\end{array}} & \text { Jose charges } \$ 4 \text { per jar. } \
\hline \begin{array}{l}
\text { Maria charges } \$ 8 \text { per } \
\text { jar. }
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 200 \text {, and } \
\text { Jose earns } \$ 180 .
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 50 \text {, and } \
\text { Jose earns } \$ 280 .
\end{array} \
\hline \begin{array}{l}
\text { Maria charges } \$ 4 \text { per } \
\text { jar. }
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 300 \text {, and } \
\text { Jose earns } \$ 40 .
\end{array} & \begin{array}{l}
\text { Maria earns } \$ 180 \text {, and } \
\text { Jose earns } \$ 150 .
\end{array} \
\hline
\end{array}$

Accepted Answer

A) $4; $4 
B) $4; $8 
C) $8; $4 
D) $8; $8 
A) $4; $4 
B) $4; $8 
C) $8; $4 
D) $8; $8

Question 15

Why is a "Nash equilibrium" called an equilibrium?

Accepted Answer

A) The market is at maximum profits, with quantity demanded equal to supply. 
B) No players can do better by changing his or her own choice alone, so the situation is relatively stable. 
C) It overcomes market failure to provide the optimum social welfare outcome. 
D) Costs are minimized, and profits are maximized. 
A) The market is at maximum profits, with quantity demanded equal to supply. 
B) No players can do better by changing his or her own choice alone, so the situation is relatively stable. 
C) It overcomes market failure to provide the optimum social welfare outcome. 
D) Costs are minimized, and profits are maximized.

Question 16

(Scenario: Payoff Matrix for Two Computer Manufacturers) Use Scenario: Payoff Matrix for Two Computer Manufacturers. If both firms pursue their BEST response:
Scenario: Payoff Matrix for Two Computer Manufacturers
The following table provides the payoff matrix for two firms, Dell and HP. They are the only two firms in the industry and can either compete or cooperate with each other, with the following profit results reflecting their actions.

Accepted Answer

A) their joint profits are maximized. 
B) their joint profits are not maximized. 
C) their joint profits reflect an equal sharing of the total profits. 
D) neither can attain its largest possible profits since there are two dominant strategies for each firm. 
A) their joint profits are maximized. 
B) their joint profits are not maximized. 
C) their joint profits reflect an equal sharing of the total profits. 
D) neither can attain its largest possible profits since there are two dominant strategies for each firm.

Question 17

(Figure: Payoff Matrix for Ozarka and Deer Park) Use Figure: Payoff Matrix for Ozarka and Deer Park. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The Nash equilibrium is:
​

Accepted Answer

A) Ozarka charges a low price, Deer Park charges a high price. 
B) Ozarka charges a low price, Deer Park charges a low price. 
C) Ozarka charges a high price, Deer Park charges a low price. 
D) Ozarka charges a high price, Deer Park charges a high price. 
A) Ozarka charges a low price, Deer Park charges a high price. 
B) Ozarka charges a low price, Deer Park charges a low price. 
C) Ozarka charges a high price, Deer Park charges a low price. 
D) Ozarka charges a high price, Deer Park charges a high price.

Question 18

Why are cooperative agreements rare in markets with strategic interactions?

Accepted Answer

A) Players have incentives to disregard such agreements. 
B) It is too hard to predict what other players will do. 
C) There is little to gain because noncooperation yields the best possible outcome. 
D) Cooperation entails higher costs. 
A) Players have incentives to disregard such agreements. 
B) It is too hard to predict what other players will do. 
C) There is little to gain because noncooperation yields the best possible outcome. 
D) Cooperation entails higher costs.

Question 19

Use the table about Hikaru and his parents to answer the question.
Hikaru wants to graduate from college as soon as possible after high school and begin his career with his personal finances as sound and debt-free as possible. Hikaru's best option to achieve this goal is _____ work part-time in high school if his parents pay his tuition and _____ work part-time in high school if his parents do not pay his tuition.
\[\text { Table: Hikaru and His Parents }\
\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline &  { \begin{array} { l } 
\text { His parents agree to pay } \
\text { Hikaru's college tuition. }
\end{array} } & { \begin{array} { c } 
\text { His parents do not pay } \
\text { Hikaru's college tuition. }
\end{array} } \
\hline \begin{array} { l } 
\text { Hikaru works part-time in } \
\text { high school and saves most of } \
\text { his income. }
\end{array} & \begin{array} { l } 
\text { Hikaru starts college right } \
\text { after high school with no debt } \
\text { and has savings when he } \
\text { graduates from college. }
\end{array} & \begin{array} { l } 
\text { Hikaru starts college right } \
\text { after high school with no debt } \
\text { for at least one year. }
\end{array} \
\hline \begin{array} { l } 
\text { Hikaru does not work or save } \
\text { in high school. }
\end{array} & \begin{array} { l } 
\text { Hikaru starts college right } \
\text { after high school with no } \
\text { debt. }
\end{array} & \begin{array} { l } 
\text { Hikaru takes out a student } \
\text { loan or delays college. }
\end{array} \
\hline
\end{array}
\end{array}\]

Accepted Answer

A) to; not to 
B) to; to 
C) not to; not to 
D) not to; to 
A) to; not to 
B) to; to 
C) not to; not to 
D) not to; to

Question 20

(Table: GoGo Gas and Fanny's Fantastic Fuel) Use Table: GoGo Gas and Fanny's Fantastic Fuel. The table shows a payoff matrix for GoGo Gas and Fanny's Fantastic Fuel in a small town. Each firm can set either a high price or a low price, and customers view both gas stations as nearly perfect substitutes. The BEST response for Fanny is to:
​

Accepted Answer

A) always set a low price. 
B) always set a high price. 
C) set a low price when GoGo sets a high price, but set a high price when GoGo sets a low price. 
D) Fanny does not have a best response. 
A) always set a low price. 
B) always set a high price. 
C) set a low price when GoGo sets a high price, but set a high price when GoGo sets a low price. 
D) Fanny does not have a best response.

Exam 18: Game Theory and Strategic Choices

When players in a game collude, they:

What type of game is played when each player must choose without knowing the other player's choice?

What advantage does a game tree have over a payoff table in presenting data for players in a game that plays out over time?

How common are strategic interactions and games in people's lives?

Which of the following terms denotes a situation in which an individual's best choice may depend on what others choose, and others' best choice may depend on what the individual chooses?

(Figure: Oligopoly Pricing Strategy in Wireless TV Market I) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market I. If neither Spectrum nor Sling advertises, then without any collusion: ​

A situation with more than one equilibrium is called:

(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The Nash equilibrium in the cable TV market occurs when: ​

Firms will choose a Grim trigger strategy if they:

What is true about game trees and payoff tables?

Why is a "Nash equilibrium" called an equilibrium?

(Figure: Payoff Matrix for Ozarka and Deer Park) Use Figure: Payoff Matrix for Ozarka and Deer Park. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The Nash equilibrium is: ​

Why are cooperative agreements rare in markets with strategic interactions?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

(Figure: Oligopoly Pricing Strategy in Wireless TV Market I) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market I. If neither Spectrum nor Sling advertises, then without any collusion:

(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The Nash equilibrium in the cable TV market occurs when:

(Figure: Payoff Matrix for Ozarka and Deer Park) Use Figure: Payoff Matrix for Ozarka and Deer Park. The figure shows the potential profits of two producers of bottled water. Each has two strategies available to it: a high price and a low price. The Nash equilibrium is: