Game Theory: A Comprehensive Guide for Microeconomics Students

Question 1

In which real-world scenario is game theory applied?

Accepted Answer

Setting prices in a competitive market

Accepted Answer

Negotiating peace agreements

Answer

Selecting a restaurant for dinner

Answer

Planning a vacation itinerary

Question 2

In game theory, rational behavior means:

Accepted Answer

Making choices that maximize your own benefit, considering others' actions

Answer

Making choices that minimize your own losses

Answer

Making choices that benefit everyone equally

Question 3

In a non-cooperative game, players make decisions:

Accepted Answer

Independently, without considering other players' actions

Answer

Randomly, without regard to the rules

Answer

Jointly, considering the best outcome for all

Question 4

Which of the following accurately defines a Nash equilibrium?

Accepted Answer

Each player's strategy is the best response to the strategies of all other players

Answer

The outcome is fair and equitable for all players

Question 5

In a zero-sum game:

Accepted Answer

One player's gain is necessarily another player's loss

Answer

Players' gains are independent of each other's losses

Answer

Both players can achieve a positive outcome simultaneously

Question 6

Which of the following is a common application of game theory?

Accepted Answer

Analyzing strategic decision-making in markets

Answer

Developing new medical treatments

Answer

Designing optimal investment portfolios

Answer

Predicting the weather

Question 7

In cooperative games, players:

Accepted Answer

May form binding agreements with each other

Answer

Are compelled to compete for a limited resource

Answer

Must always act in their own narrow self-interest

Answer

Cannot communicate or interact with each other

Question 8

Which of the following is a recognized limitation of using game theory?

Accepted Answer

It assumes players are rational and have complete information

Answer

It is only applicable to economic scenarios

Answer

It can always accurately predict real-world outcomes

Question 9

In a game with imperfect information, players:

Accepted Answer

May not have complete knowledge about the game or other players' strategies

Answer

Are not allowed to communicate with each other

Answer

Always have perfect knowledge of the game and other players' strategies

Answer

Can perfectly predict the outcome of the game

Question 10

Which of the following is a type of game where players make decisions simultaneously?

Accepted Answer

Static game

Answer

Zero-sum game

Answer

Dynamic game

Answer

Sequential game

Question 11

Game theory has found applications in a diverse range of fields, including:

Accepted Answer

Economics, biology, political science, and computer science

Answer

Only biology and computer science

Answer

Only economics and political science

Answer

Only economics

Question 12

Which of the following is NOT a fundamental concept in game theory?

Accepted Answer

Risk aversion

Answer

Strategic interaction

Answer

Nash equilibrium

Answer

Payoff matrix

Question 13

In a non-cooperative game, players:

Accepted Answer

Act independently, seeking to maximize their own payoffs

Answer

Have perfect information about other players' actions

Answer

Can communicate and negotiate freely

Answer

Share a common goal and work together

Question 14

What is a Nash equilibrium?

Accepted Answer

A set of strategies where no player can improve their payoff by unilaterally changing their strategy, given the strategies of others

Answer

A situation where one player's gain is another player's loss

Answer

A state in which players cannot communicate or coordinate

Answer

A strategy that guarantees the best possible outcome for all players

Question 15

In a cooperative game, players:

Accepted Answer

May cooperate and form binding agreements to enhance joint payoffs

Answer

Cannot communicate or negotiate with each other

Answer

Always compete against each other

Question 16

Select the primary benefit of utilizing game theory in economic analysis:

Accepted Answer

Provides insights into decision-making and behavior in competitive markets

Answer

Eliminates risk and uncertainty in economic decision-making

Answer

Guarantees optimal outcomes for all participants

Question 17

Refer to the given payoff matrix for a game between players A and B:
    | A / B | Left | Right |
    |---|---|---|
    | Up | (3, 2) | (0, 0) |
    | Down | (1, 1) | (2, 3) |
    If Player A chooses Down and Player B chooses Right, what is the resulting Nash equilibrium?

Accepted Answer

Down, Right

Answer

Down, Left

Answer

Up, Left

Answer

Up, Right

Question 18

Which factors can affect the outcome of a game?

Accepted Answer

Number of players, available information, and player preferences

Answer

Only the number of players

Answer

Only the preferences of the players

Question 19

What is a limitation of game theory?

Accepted Answer

Can be challenging to apply to complex games with numerous players and strategies

Answer

Is not applicable to real-world economic decision-making

Answer

Always provides a complete and accurate representation of human behavior

Question 20

In a zero-sum game, the total gain to all players is:

Accepted Answer

Zero

Answer

Negative

Answer

Uncertain

Answer

Positive

Question 21

Which of the following is the correct definition of a dominant strategy in a game?

Accepted Answer

A strategy that maximizes expected payoff, regardless of the strategies chosen by other players

Answer

A strategy that results in the worst possible outcome

Answer

A strategy that minimizes risk

Question 22

In a zero-sum game, the total winnings of all players must:

Accepted Answer

Sum to zero

Answer

Be negative

Answer

Be positive

Answer

Vary with the number of players

Question 23

Which of the following is a defining characteristic of a Nash equilibrium?

Accepted Answer

No player can unilaterally change their strategy to improve their payoff

Answer

The equilibrium must be Pareto efficient

Answer

All players must have the same strategy

Question 24

In a game with complete information, each player is aware of:

Accepted Answer

The strategies and payoffs of all other players

Answer

The payoffs of all other players, but not their strategies

Answer

The strategies of all other players, but not their payoffs

Answer

Only their own strategies and payoffs

Question 25

Which type of game is characterized by players making decisions in sequence?

Accepted Answer

Dynamic game

Answer

Zero-sum game

Answer

Static game

Answer

Cooperative game

Question 26

In a game with perfect information, players:

Accepted Answer

Have complete knowledge of the game's rules and strategies

Answer

Do not know the strategies or payoffs of other players

Answer

Have limited knowledge of the game's rules

Question 27

The goal of backward induction in game theory is to:

Accepted Answer

Determine the Nash equilibrium of a dynamic game

Answer

Maximize the expected payoff of all players

Answer

Identify the dominant strategy of each player

Answer

Minimize the risk of loss for all players

Question 28

Which market structure is characterized by a single firm dominating a significant share of the market?

Accepted Answer

Monopoly

Answer

Perfect competition

Answer

Monopsony

Answer

Oligopoly

Question 29

Which of the following is NOT a defining characteristic of a dominant strategy?

Accepted Answer

It can depend on the actions of other players.

Answer

It is always the best action to take, regardless of what others do.

Answer

It is a strategy that is always chosen by rational players.

Answer

It maximizes a player's payoff.

Question 30

In a zero-sum game, if one player wins, the other player must:

Accepted Answer

lose an equivalent amount.

Answer

win the same amount.

Answer

lose a smaller amount.

Answer

win a larger amount.

Question 31

Which of the following is a necessary condition for a Nash equilibrium to exist?

Accepted Answer

No player can improve their payoff by unilaterally changing their strategy, given the strategies of the other players.

Answer

All players choose the same strategy.

Question 32

In a cooperative game, players can:

Accepted Answer

make binding agreements.

Answer

always achieve the Pareto efficient outcome.

Answer

not communicate with each other.

Answer

only play dominant strategies.

Question 33

Which of the following is a potential benefit of using game theory in economics?

Accepted Answer

Enhanced prediction of strategic behavior in competitive environments.

Answer

Elimination of uncertainty in economic decision-making.

Answer

Guarantee of optimal outcomes for all players.

Question 34

A firm considers investing in a new product (option A) or maintaining its current product line (option B). The payoff matrix below shows the profits (in thousands of pounds) for each option, depending on whether the market grows (event G) or declines (event D). Which option should the firm choose if it estimates a 60% likelihood of market growth?

Accepted Answer

Option A

Answer

Neither option, as the expected payoffs are equal.

Answer

Option B

Question 35

In a sequential game, the player who acts earlier:

Accepted Answer

enjoys a first-mover advantage.

Answer

faces a last-mover disadvantage.

Answer

gains no particular advantage.

Question 36

Which of the following is NOT a recognized limitation of game theory?

Accepted Answer

Guaranteed prediction of real-world decision-maker behavior.

Answer

Assumes players are rational and fully informed.

Answer

Complexity in applying to real-world scenarios.

Question 37

In a prisoner's dilemma, what outcome is most likely if both players are solely focused on maximizing their individual payoffs?

Accepted Answer

Both players defect

Answer

Player A cooperates, Player B defects

Answer

Player A defects, Player B cooperates

Answer

Both players cooperate

Question 38

In a Nash equilibrium, each player's strategy is best described as:

Accepted Answer

The optimal response to the other player's strategy

Answer

A random choice

Answer

The strategy with the highest individual payoff

Answer

The strategy that ensures the best overall outcome

Question 39

Which of the following is a characteristic of a non-cooperative game?

Accepted Answer

Players' strategies are independent and each player optimizes their own outcome

Answer

Players have perfect information about the game and each other's strategies

Answer

The outcome is always Pareto efficient

Answer

Players can communicate and form binding agreements

Question 40

In a Bertrand duopoly model, when firms produce identical products and set prices simultaneously, what is the predicted market outcome?

Accepted Answer

Price-matching and zero economic profits

Answer

Price-setting above marginal cost and positive economic profits

Answer

Price differentiation and positive economic profits

Answer

Random pricing and unpredictable outcomes

Question 41

Which of the following is a potential benefit of using game theory in business decision-making?

Accepted Answer

Enhancing the ability to make strategic decisions under conditions of uncertainty

Answer

Ensuring success in every business endeavor

Answer

Eliminating all risks and competition in the market

Answer

Guaranteeing instant wealth creation

Question 42

In a repeated game, how can the threat of future consequences influence player behavior?

Accepted Answer

It can promote cooperative behavior, even if it is not the dominant strategy in a single-shot game

Answer

It has no impact on player behavior

Answer

It encourages more aggressive behavior

Answer

It always leads to random behavior

Question 43

Which of the following is a criticism of game theory?

Accepted Answer

It assumes rational decision-making, which may not always be realistic in practice

Answer

It provides valuable insights into strategic interactions

Answer

It is always easy to apply in practice

Answer

It always accurately predicts real-world behavior

Question 44

In a two-player game, what constitutes a player's strategy set?

Accepted Answer

All possible actions available to the player

Answer

The outcome of the game

Answer

The other player's strategy set

Answer

The player's personal preferences

Question 45

What is a mixed strategy in game theory?

Accepted Answer

Randomizing over pure strategies with specified probabilities

Answer

Defecting against the other player

Answer

Cooperating with the other player

Answer

Choosing a single pure strategy

Question 46

In a non-cooperative game, what is the primary goal of each player?

Accepted Answer

To maximize their own payoff, irrespective of the choices made by other players

Answer

To always choose the dominant strategy

Answer

To minimize their own losses

Question 47

The prisoner's dilemma is an example of:

Accepted Answer

A non-cooperative game

Answer

A zero-sum game

Answer

A dominant strategy game

Answer

A cooperative game

Question 48

In a zero-sum game, the total possible payoff among all players:

Accepted Answer

Is constant regardless of the strategies chosen by the players

Answer

Is always negative

Answer

Is equal to the sum of the individual payoffs

Question 49

Cooperative games are characterized by:

Accepted Answer

Players having the ability to make binding agreements

Answer

The absence of any Nash equilibria

Answer

Payoffs always being equally distributed among players

Answer

Players only competing against each other

Question 50

Sequential games involve decision-making:

Accepted Answer

Where players take turns in a predetermined order

Answer

That is driven by emotional rather than rational considerations

Answer

That is always based on complete information

Answer

In which all players move simultaneously

Question 51

A key benefit of using game theory to analyze strategic interactions is:

Accepted Answer

Predicting the likely outcomes of different strategic choices

Answer

Guaranteeing cooperation and fair outcomes

Answer

Eliminating all uncertainty about future events

Question 52

Rationality in game theory implies:

Accepted Answer

Players making decisions that aim to maximize their expected payoffs

Answer

Players always choosing the same strategies

Answer

Players being completely risk-averse

Question 53

Game theory has been effectively used in analyzing strategic interactions in fields including:

Accepted Answer

All of the listed options (Political Science, Economics, and Biology)

Answer

Political Science

Answer

Biology

Answer

Economics