Question 1

Which of the following is true for a two-person game which has a Nash equilibrium?

Accepted Answer

A) Only one of the two players will have a dominant strategy. 
B) The game must have a dominant-strategy equilibrium. 
C) The dominant strategy of the players must be different. 
D) The game may or may not have a dominant-strategy equilibrium. 
A) Only one of the two players will have a dominant strategy. 
B) The game must have a dominant-strategy equilibrium. 
C) The dominant strategy of the players must be different. 
D) The game may or may not have a dominant-strategy equilibrium.

Question 2

Like a market for "lemons," the labor market can also be affected by asymmetric information.Suppose a firm wants to hire more workers.The workers (or sellers of labor)know much more about their true productivity than the firm (or buyer of labor).The firm would like to hire workers and pay them according to their productivity but it is costly for them to hire workers,observe their behavior and productivity (do they work hard? are they on time?),and then fire those that do not perform well.Therefore,the firm would like to know how productive a worker will be before it hires that person.Can the firm acquire information (called a signal)about a worker's future productivity before hiring them? Can workers somehow signal their future productivity to firms?
This example is based on Michael Spence,"Job Market Signaling," Quarterly Journal of Economics,87 (August 1973),pp.205 - 221 and adapted from Ehrenberg and Smith,Modern Labor Economics,7th edition,Addison-Wesley.
Assume there are only 2 types of workers,low productivity or high productivity.Workers with 16 years or more of education will be offered a wage leading to a present value of lifetime income of $2,000,000.Those completing less than 16 years of education are offered a wage leading to a present value of lifetime income equal to $1,000,000.
Suppose that the total cost of various levels of education is given by the equations CA = 300,000(E-12)and CB = 200,000(E-12)where type A workers are "low productivity" workers and type B workers are "high productivity" workers,and E represents years of education.
(
A)What is the net benefit (difference between the present value of income and total cost)a type A person derives from attaining 16 years of education? What would be the net benefit for type A from 12 years of education? What is the optimal level of education for a type A person?
(b)Is 16 years of education an effective way to distinguish low-ability workers from high-ability workers? Why?
(c)Suppose firms raised the cutoff for the higher wage job to 18 years of education.Would this be an effective signal of worker productivity? Why or why not?
(d)To be an effective signal,what must be the relationship between the cost of acquiring the signal and a worker's productivity?
(e)How might grade inflation affect the effectiveness of the signal?

Accepted Answer

(a)For a Type A person,the net benefit f

Question 3

_____ is the term used to describe the total amount of the hospital cost that is borne by a patient before insurance coverage becomes effective.

Accepted Answer

A) Copayment 
B) Premium 
C) Deductible 
D) Coinsurance 
A) Copayment 
B) Premium 
C) Deductible 
D) Coinsurance

Question 4

Health insurance companies often place limitations on the services covered by the insurance to deal with the:

Accepted Answer

A) prisoner's dilemma problem. 
B) asymmetric information problem. 
C) common resource problem. 
D) limited price information problem. 
A) prisoner's dilemma problem. 
B) asymmetric information problem. 
C) common resource problem. 
D) limited price information problem.

Question 5

For which of the following commodities will the benefit from search be the highest?

Accepted Answer

A) Washing machines 
B) Real estate 
C) Apparels 
D) Books 
A) Washing machines 
B) Real estate 
C) Apparels 
D) Books

Question 6

Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:

Accepted Answer

A) cheat in every period. 
B) cheat in alternate periods. 
C) cheat in every period but the first. 
D) cheat in every period but the last. 
A) cheat in every period. 
B) cheat in alternate periods. 
C) cheat in every period but the first. 
D) cheat in every period but the last.

Question 7

Compare the benefits and the costs of advertising.

Accepted Answer

Advertisements allow firms to achieve an

Question 8

An effective and enforceable collusion in a duopoly will result in:

Accepted Answer

A) a monopoly price and output in the market. 
B) a perfectly competitive outcome. 
C) an inefficient equilibrium. 
D) a large consumer surplus. 
A) a monopoly price and output in the market. 
B) a perfectly competitive outcome. 
C) an inefficient equilibrium. 
D) a large consumer surplus.

Which of the following is true for a two-person game which has a Nash equilibrium?

_____ is the term used to describe the total amount of the hospital cost that is borne by a patient before insurance coverage becomes effective.

Health insurance companies often place limitations on the services covered by the insurance to deal with the:

For which of the following commodities will the benefit from search be the highest?

Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:

Compare the benefits and the costs of advertising.

An effective and enforceable collusion in a duopoly will result in:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 14: Game Theory and the Economics of Information

Which of the following is true for a two-person game which has a Nash equilibrium?

_____ is the term used to describe the total amount of the hospital cost that is borne by a patient before insurance coverage becomes effective.

Health insurance companies often place limitations on the services covered by the insurance to deal with the:

For which of the following commodities will the benefit from search be the highest?

Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:

Compare the benefits and the costs of advertising.

An effective and enforceable collusion in a duopoly will result in:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters