Deck 17: Auctions and Bargaining

Question 1

An English auction is usually a(n)________ auction.

A) first-price
B) second-price
C) penny
D) open-outcry

Answer 1

open-outcry

Question 2

What are the different types of auctions based on how people place their bids?

Answer 2

There are two different types of auctions based on how people place their bids.These are open-outcry auctions and sealed bid auctions.In open-outcry auctions,bids are placed publicly and the bidders compete directly against each other.In sealed bid auctions,all bids are private and unknown to the other bidders.

Question 3

A sealed bid auction is one in which bidders ________.

A) do not know one another's bid
B) know one another's bid
C) place their bids one after another
D) cannot determine the price of the good

Answer 3

do not know one another's bid

Question 4

An English auction consists of ________.

A) an auctioneer and several bidders
B) one auctioneer and one bidder
C) fewer auctioneers than bidders
D) several auctioneers and one bidder

Question 5

Auctions can be differentiated on the basis of ________.

A) the number of buyers
B) the number of sellers
C) the way in which people place their bids
D) the degree of competition among buyers

Question 6

What is the reason for the popularity of auctions among consumers?

Question 7

Gary has won a laptop in an online auction.This implies that Gary's willingness to pay for the laptop was ________.

A) higher than its market price
B) lower than its market price
C) higher than that of the other bidders
D) lower than that of at least one bidder

Question 8

In an English auction,________.

A) the bidders begin the bidding process with a high starting bid
B) the auctioneer begins the bidding process with a high starting bid
C) the auctioneer begins the bidding process with a low starting bid
D) the bidders decide the starting bid

Question 9

In an English auction,the winner pays a price equal to ________.

A) the value of the highest bid
B) the value of the lowest bid
C) his value for the good
D) the value of the second-highest bid

Question 10

In general,it is common for goods with ________ to be auctioned.

A) low prices
B) relatively few buyers
C) a large number of buyers
D) a large number of sellers

Question 11

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction and each of them uses his optimal strategy,who will win?

A) Tom
B) Bill
C) Jeff
D) Roger

Question 12

If Tom is participating in an English auction,he should ________.

A) bid up to his maximum willingness to pay
B) bid above his maximum willingness to pay
C) bid below his value for the good being auctioned
D) pay a fee to place a bid

Question 13

In an English auction,________ with each bid.

A) the price of the good increases
B) the price of the good decreases
C) the quantity of the good being offered increases
D) the quantity of the good being offered decreases

Question 14

Kim is participating in an auction in which bids are placed publicly and the price of the good being auctioned increases until there is only one standing bid.This is an example of a(n)________ auction.

A) English
B) Dutch
C) first-price
D) second-price

Question 15

In an English auction,the ________ bidder wins.

A) highest
B) second-highest
C) first
D) second

Question 16

What are the different types of auctions based on how the price of the item being auctioned is determined?

Question 17

In an auction,________.

A) buyers set the price of a good
B) the seller sets the price of a good
C) the government sets the price of a good below its market price
D) the government sets the price of a good above its market price

Question 18

If you are participating in an English auction,you will win if ________.

A) you place a bid before the other bidders
B) you place the highest bid
C) you pay a fee to place a bid
D) you place the second-highest bid

Question 19

An English auction ends when ________.

A) no bidder is willing to bid any higher
B) a bidder accepts the price announced by the auctioneer
C) a bidder bids above the market price of the good
D) a bidder bids below the starting bid

Question 20

An open-outcry auction is an auction where ________.

A) bids are placed privately
B) public goods are sold
C) bidders know about one another's bids
D) free goods are distributed among the general public

Question 21

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction and each bidder bids up to his value for the good,the winner will earn a surplus of ________.

A) $500
B) $625
C) $125
D) $150

Question 22

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction and each bidder uses his optimal strategy,the maximum price the winner is likely to pay is ________.

A) $210
B) $350
C) $500
D) $625

Question 23

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction,Tom will no longer bid when bidding reaches ________.

A) $200
B) $210
C) $350
D) $500

Question 24

In a Dutch auction,________.

A) the bidders begin the bidding process with a low starting bid
B) the auctioneer begins the bidding process with a low starting bid
C) the auctioneer begins the bidding process with a high starting bid
D) the bidders decide the starting bid

Question 25

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction,Bill will continue to bid as long as bidding is below ________.

A) $420
B) $210
C) $500
D) $625

Question 26

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.Suppose there are several other bidders in the auction.Roger will win the auction only if ________.

A) all the other bidders bid above $625
B) all the other bidders bid below $625
C) all the other bidders are risk lovers
D) all the bidders are risk averse

Question 27

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If these four friends are the only bidders and each bidder uses his optimal strategy,the owner of the good will earn an expected revenue of ________.

A) $210
B) $350
C) $500
D) $625

Question 28

Many online auctions end when a certain amount of time has gone by without a bid.This causes bidders to place several last-minute bids.This practice is known as ________.

A) sniping
B) trading
C) bargaining
D) signing off

Question 29

Scenario: An ancient painting is being auctioned off in an English auction. The following table shows the maximum willingness to pay of each bidder.

Refer to the scenario above.Which of the following is true if David's maximum willingness to pay falls to $380?

A) James will win the auction.
B) Rachel will not take part in the auction.
C) The owner of the painting will earn the same average revenue.
D) David will win the auction.

Question 30

A(n)________ is an auction in which bids are placed publicly and the price decreases until a bidder stops the auction.

A) English auction
B) Dutch auction
C) silent auction
D) penny auction

Question 31

Scenario: An ancient painting is being auctioned off in an English auction. The following table shows the maximum willingness to pay of each bidder.

Refer to the scenario above.If the starting bid is $250,________ will win the auction and will have to pay ________ for the painting.

A) Bob; $250
B) James; $400
C) Rachel; $450
D) Joe; $400

Question 32

Scenario: An ancient painting is being auctioned off in an English auction. The following table shows the maximum willingness to pay of each bidder.

Refer to the scenario above.Which of the following statements will hold true if the starting bid is $300?

A) Everyone except Bob will take part in the auction.
B) Everyone will take part in the auction.
C) Only Bob will take part in the auction.
D) Everyone except Joe will take part in the auction.

Question 33

Mr.Smith won a laptop in an online auction in which bidders could one another's bids,and the price increased with every new bid.
a)If Mr.Smith values the laptop at $400,determine his dominant strategy.
b)Will there be a change in his optimal bidding strategy if there is an increase in the number of bidders?

Question 34

Scenario: An ancient painting is being auctioned off in an English auction. The following table shows the maximum willingness to pay of each bidder.

Refer to the scenario above.The optimal strategy for Rachel is to bid a price ________.

A) above her willingness to pay
B) equal to half the amount she is willing to pay
C) equal to 5/6 times her willingness to pay
D) up to her willingness to pay

Question 35

Scenario: An ancient painting is being auctioned off in an English auction. The following table shows the maximum willingness to pay of each bidder.

Refer to the scenario above.The winner of this auction will earn a consumer surplus of ________.

A) $450
B) $50
C) $150
D) $100

Question 36

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.If they are the only bidders in the auction,Jeff will win the auction if ________.

A) Tom and Roger bid up to their value for the good while Bill and Jeff bid below their value for the good
B) Tom and Jeff bid up to their value for the good while Roger and Bill bid below their value for the good
C) Bill and Jeff bid up to their value for the good while Tom and Roger stop bidding at $100 and $200, respectively
D) each of them bids up to his value for the good

Question 37

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.In this case,a Nash equilibrium occurs if ________.

A) each of them bids up to their value for the good
B) Tom and Roger bid up to their value for the good while Bill and Jeff bid below their value for the good
C) Tom and Jeff bid up to their value for the good while Roger and Bill bid below their value for the good
D) Bill and Jeff bid up to their value for the good while Tom and Roger stop bidding at $100 and $200, respectively

Question 38

A Dutch auction is a(n)________.

A) first-price auction
B) second-price auction
C) penny auction
D) open-outcry auction

Question 39

Scenario: Four friends-Tom, Bill, Jeff, and Roger-are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.
Refer to the scenario above.Which of the following is true in this case?

A) There is no Nash equilibrium.
B) There is no dominant strategy equilibrium.
C) The dominant strategy equilibrium is the Nash equilibrium.
D) The dominant strategy equilibrium is not the Nash equilibrium.

Question 40

Explain why the dominant strategy equilibrium in an English auction is also the Nash equilibrium.

Question 41

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.What is the optimal strategy of each bidder?

A) Each bidder should bid up to his or her maximum willingness to pay for the necklace.
B) Each bidder should bid above his or her maximum willingness to pay for the necklace.
C) Each bidder should bid up to 9/10 of his or her valuation of the necklace.
D) Each bidder should bid up to 4/5 of his or her valuation of the necklace.

Question 42

In a Dutch auction,the winner pays a price equal to ________.

A) the market price of the good
B) the value of the lowest bid
C) her value for the good
D) her bid

Question 43

In a Dutch auction,the ________ wins the good.

A) bidder who bids up to his value for the good
B) bidder who stops the auction
C) bidder with the lowest value for the good
D) second bidder

Question 44

Scenario: Alice is participating in a Dutch auction for a painting. There are five other bidders, and Alice values the painting at $30,000.
Beth is participating in a Dutch auction.Bidding starts at $500,and her maximum willingness to pay is $400.The total number of bidders participating in the auction is four.Her optimal bid strategy is to buy when the price reaches ________.

A) $320
B) $300
C) $375
D) $125

Question 45

In a Dutch auction,the higher the bid,the ________ the surplus and the ________ the chance of winning.

A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower

Question 46

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.If the best response of one bidder is to place a bid of $9,000,what is her maximum willingness to pay for the necklace?

A) $10,000
B) $9,000
C) $4,500
D) $18,000

Question 47

A ________ person is indifferent to a bet that has zero expected value.

A) risk-neutral
B) risk-loving
C) risk-averse
D) rent-seeking

Question 48

In a Dutch auction,________ with each bid.

A) the price of the good increases
B) the price of the good decreases
C) the quantity of the good being offered increases
D) the quantity of the good being offered decreases

Question 49

Scenario: Alice is participating in a Dutch auction for a painting. There are five other bidders, and Alice values the painting at $30,000.
Refer to the scenario above.What is Alice's optimal bidding price?

A) $25,000
B) $30,000
C) $24,000
D) $36,000

Question 50

Scenario: Alice is participating in a Dutch auction for a painting. There are five other bidders, and Alice values the painting at $30,000.
Refer to the scenario above.If Alice wins the auction,the seller earns an average revenue of ________.

A) $30,000
B) $25,000
C) $24,000
D) $36,000

Question 51

In a Dutch auction,the starting bid is ________.

A) far above any bidder's value for the good being auctioned
B) far below any bidder's value for the good being auctioned
C) far below the market price of the good
D) equal to the market price of the good

Question 52

One assumption that economists often make while determining the outcome of a Dutch auction is that the bidders are ________.

A) risk neutral
B) risk averse
C) risk seekers
D) rent seekers

Question 53

Scenario: Alice is participating in a Dutch auction for a painting. There are five other bidders, and Alice values the painting at $30,000.
Refer to the scenario above.Alice will earn an expected surplus of ________ if she uses her optimal strategy to win the game.

A) $5,000
B) $6,000
C) $30,000
D) $16,000

Question 54

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.Rebecca should place a bid of ________.

A) $40,500
B) $45,000
C) $50,000
D) $55,000

Question 55

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.If Rebecca wins the auction,she will earn a surplus of ________.

A) $1,000
B) $4,500
C) $5,000
D) $45,000

Question 56

Bidding in a Dutch auction continues until ________.

A) no bidder is willing to bid any higher
B) a bidder accepts the price announced by the auctioneer
C) a bidder bids above the market price of the good
D) a bidder bids below the starting bid

Question 57

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.The seller will earn a revenue of ________.

A) $45,000
B) $40,500
C) $5,000
D) $4,500

Question 58

Scenario: Rebecca is participating in a Dutch auction for an antique necklace. The total number of bidders in this auction is ten. Rebecca values the necklace at $45,000, while all the other bidders value it below $45,000.
Refer to the scenario above.If the number of participants in the auction increases to twenty,Rebecca should place a bid of ________.

A) $45,000
B) $42,750
C) $4,500
D) $40,500

Question 59

The larger the number of bidders in a Dutch auction,________.

A) the lower is the maximum willingness to pay of each bidder
B) the smaller is the consumer surplus earned by the winner
C) the larger is the quantity offered by the auctioneer for auction
D) the lower is the value of the starting bid

Question 60

Scenario: Alice is participating in a Dutch auction for a painting. There are five other bidders, and Alice values the painting at $30,000.
Refer to the scenario above.Which of the following will be true if Alice stops the auction at $30,000?

A) She will earn zero consumer surplus.
B) She will earn a consumer surplus of $5,000.
C) She will earn a consumer surplus of $30,000.
D) She will earn a consumer surplus of $16,000.

Question 61

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.Alex should place a bid of ________.

A) $187.50
B) $200.50
C) $225
D) $250

Question 62

What is the drawback of a bidder bidding up to his or her willingness to pay for a good in a Dutch auction?

Question 63

What is the difference between the optimizing strategies used in an English auction and a Dutch auction?

Question 64

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.John should submit a bid of ________.

A) $400
B) $300
C) $100
D) $200

Question 65

Robert is participating in a Dutch auction.If he values the item being auctioned at $5,500 and there are five bidders in total,what should Robert's optimal bidding strategy be?

Question 66

Scenario: Consider the following situation. Molly is one among the sixty-one bidders who take part in a first-price auction for vintage furniture. Molly places a value of $850, the highest value, for a vintage dressing table that comes up for auction. Joseph has the second-highest willingness to pay of $750.
Refer to the scenario above.If Molly wins the auction by using her optimal bidding strategy,she will earn a surplus of ________.

A) $0
B) $50
C) $14
D) $25

Question 67

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.Maria should submit a bid of ________.

A) $300
B) $150
C) $200
D) $250

Question 68

The winner in a first-price auction pays an amount equal to ________.

A) his bid
B) the second-highest bid
C) half of his bid
D) the lowest bid

Question 69

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.Jacob should submit a bid of ________.

A) $500
B) $400
C) $300
D) $225

Question 70

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.If each bidder uses his or her dominant strategy,who will win the auction?

A) John
B) Jacob
C) Alex
D) Maria

Question 71

Which of the following is a difference between an English auction and a Dutch auction?

A) Bids are placed publicly in an English auction, while bids are placed privately in a Dutch auction.
B) The bidder who values the good the most wins in an English auction, while the bidder who values the good the least wins in a Dutch auction.
C) An English auction is an ascending price auction, while a Dutch auction is a descending price auction.
D) An English auction is a descending price auction, while a Dutch auction is an ascending price auction.

Question 72

Which of the following is a similarity between an English auction and a Dutch auction?

A) The second-highest bidder wins the good.
B) The bidder who values the good the most wins the good.
C) The bidders submit their bids privately at the same time.
D) The bidders submit their bids privately at different times during the bidding process.

Question 73

In which of the following types of auctions can bidders not see one another's bids?

A) An English auction
B) A Dutch auction
C) A silent auction
D) A sealed bid auction

Question 74

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.The seller will earn a revenue of ________.

A) $100
B) $300
C) $200
D) $400

Question 75

Scenario: Consider the following situation. Molly is one among the sixty-one bidders who take part in a first-price auction for vintage furniture. Molly places a value of $850, the highest value, for a vintage dressing table that comes up for auction. Joseph has the second-highest willingness to pay of $750.
Refer to the scenario above.Which of the following is an optimal bid for Molly?

A) $836
B) $750
C) $825.50
D) $700

Question 76

In a first-price auction,________.

A) bidders submit their bids privately
B) bidders place their bids one after another publicly
C) bidders know one another's bids
D) bidders bid above their willingness to pay

Question 77

Which of the following is true of a first-price auction?

A) Bidders directly compete with one another.
B) Bidders place their bids simultaneously.
C) Bidders know one another's bids.
D) Bidders always bid below their willingness to pay.

Question 78

Scenario: John, Jacob, Alex, and Maria participate in a first-price auction for an iPod. John values the iPod at $400, Jacob values it at $300, Alex values it at $250, and Maria values it at $200.
Refer to the scenario above.The winner of this auction will earn a surplus of ________ if he or she follows his or her dominant strategy.

A) $100
B) $300
C) $400
D) $200

Question 79

Consider the following situation: five individuals are participating in an auction for an old bicycle used by a famous cyclist.The table below provides the bidders' valuations of the cycle.The auctioneer starts the bid at an offer price far above the bidders' values and lowers the price in increments until one of the bidders accepts the offer.

a)What is the optimal strategy of each player in this case?
b)Who will win the auction if each bidder places his or her optimal bid?
c)If Claudia wins the auction,how much surplus will she earn?

Question 80

In a first-price auction,the ________ bidder wins the good being auctioned.

A) lowest
B) second-highest
C) highest
D) first