Master Microeconomics II: Enhance Your Economic Expertise

Question 1

Which characteristic is a defining feature of a perfectly competitive market?

Accepted Answer

Firms can easily enter or leave the market.

Answer

A few large firms control most of the market share.

Answer

Firms can set their own prices without considering competitors.

Answer

Products sold in the market are very different from each other.

Question 2

In perfect competition, firms are known for which of these traits?

Accepted Answer

Firms produce at the output level where marginal cost equals marginal revenue.

Answer

Firms can significantly influence market prices.

Answer

Firms face demand curves that slope upwards for their products.

Answer

Firms have substantial control over market supply.

Question 3

Which characteristic is unique to perfect competition compared to other market structures?

Accepted Answer

Identical products and numerous buyers and sellers

Answer

High barriers to entry and exit

Answer

Price-setting power for individual firms

Answer

Market dominance by a few large firms

Question 4

In the long run, a perfectly competitive firm will produce output at a price equal to its:

Accepted Answer

Marginal cost

Answer

Average variable cost

Answer

Average total cost

Answer

Marginal revenue

Question 5

Which assumption is NOT characteristic of a perfectly competitive market?

Accepted Answer

Products sold by different firms are noticeably distinct.

Answer

Numerous buyers and sellers participate in the market.

Answer

Firms cannot independently determine prices.

Answer

There are no obstacles to entering or leaving the market.

Question 6

Which condition is NOT required for a market to be considered perfectly competitive?

Accepted Answer

Differentiated products

Answer

Numerous buyers and sellers

Answer

No barriers to market entry or exit

Answer

Complete market information

Question 7

In a perfectly competitive market, the demand curve faced by a firm is:

Accepted Answer

Horizontal

Answer

Vertical

Answer

Downward sloping

Answer

Upward sloping

Question 8

In a perfectly competitive market, each firm is a:

Accepted Answer

Price receiver

Answer

Price setter

Answer

Price controller

Answer

Price finder

Question 9

In a perfectly competitive market, what forces determine the equilibrium price?

Accepted Answer

Interaction of supply and demand

Answer

Individual producers' decisions

Answer

Government regulations

Answer

Negotiations between buyers and sellers

Question 10

Which characteristic is NOT a feature of a perfectly competitive market?

Accepted Answer

Sellers charge different prices to different customers.

Answer

Numerous buyers and sellers participate in the market.

Answer

Identical products are traded.

Answer

Firms can freely enter or exit the market.

Question 11

Which characteristic is NOT a typical feature of perfect competition?

Accepted Answer

Barriers to entry and exit

Answer

Numerous buyers and sellers

Answer

Price-taking behavior by firms

Answer

Standardized products

Question 12

In game theory, a Nash Equilibrium is best defined as:

Accepted Answer

No player can improve their outcome by changing their strategy alone

Answer

All players selecting the same strategy

Answer

The total payoff for all players is maximized

Question 13

In the short run, a perfectly competitive firm will maximize output by producing at the point where:

Accepted Answer

Marginal revenue equals marginal cost

Answer

Average revenue equals average cost

Answer

Total revenue is maximized

Answer

Total cost is minimized

Question 14

In a perfectly competitive market, which characteristic is essential?

Accepted Answer

Many buyers and sellers

Answer

High barriers to entry and exit

Answer

Price influence by individual firms

Answer

Heterogeneous products

Question 15

In a monopolistic competition market, firms' products are characterized by:

Accepted Answer

Differentiated, with firms offering unique products

Answer

Identical, with no differentiation

Answer

Homogeneous, with firms producing identical products

Question 16

In a perfectly competitive market, the firm's short-run supply curve is determined by its:

Accepted Answer

Marginal cost

Answer

Average cost

Answer

Total cost

Answer

Fixed cost

Question 17

Which characteristic is NOT a feature of a perfectly competitive market?

Accepted Answer

Firms have control over pricing

Answer

Numerous buyers and sellers

Answer

Identical products across firms

Answer

Free entry and exit for firms

Question 18

To maximize profits, a perfectly competitive firm will produce output at the point where:

Accepted Answer

Marginal revenue equals marginal cost

Answer

Marginal cost exceeds marginal revenue

Answer

Average total cost falls below average revenue

Answer

Total revenue surpasses total cost

Question 19

Which attribute is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Price variations across consumers

Answer

Numerous buyers and sellers

Answer

Identical products

Answer

Unrestricted market entry and exit

Question 20

Which characteristic is essential to a perfectly competitive market?

Accepted Answer

Numerous buyers and sellers

Answer

Limited entry of new firms

Answer

Firms can influence market prices

Answer

Products are highly differentiated

Question 21

In a perfectly competitive market, which of these is a key characteristic?

Accepted Answer

Firms have no control over prices

Answer

A few large sellers dominate the market

Answer

It is difficult for new firms to enter or leave the market

Answer

Products are unique and different from each other

Question 22

Identify the scenario that illustrates a negative externality:

Accepted Answer

A factory releases untreated pollutants, damaging neighboring crops.

Answer

A community park is built, raising property values in the vicinity.

Answer

A tax incentive promotes investment in renewable energy sources.

Question 23

In an oligopoly market structure, how many firms typically dominate the industry?

Accepted Answer

A few

Answer

Many

Answer

Only one

Question 24

In an oligopoly market, how does a merger between two firms affect market dynamics? Analyze the impact on market concentration, barriers to entry, and consumer welfare.

Accepted Answer

Increased market concentration, leading to higher prices and reduced product variety, negatively impacting consumer welfare.

Answer

Increased market concentration, but minimal impact on consumer welfare due to continued competition.

Answer

Reduced market concentration, resulting in increased competition, lower prices, and improved consumer welfare.

Answer

No significant impact on market concentration or consumer welfare.

Question 25

Which of the following best describes an oligopoly?

Accepted Answer

A market with a small number of large firms

Answer

A market with only one firm

Answer

A market with many small firms

Answer

A market controlled by a government-owned firm

Question 26

If a perfectly competitive market experiences a shift in demand from D1 to D2, what will be the outcome?

Accepted Answer

A new equilibrium price and a shift in the demand curve.

Answer

A movement along the supply curve.

Answer

A movement along the demand curve.

Answer

A shift in the supply curve.

Question 27

In a sequential game, the player who moves first has an advantage because they can:

Accepted Answer

Commit to a strategy before the other player responds

Answer

Observe the other player's move and react accordingly

Answer

Prevent the other player from making any moves

Answer

Guarantee the best possible outcome

Question 28

A distinctive characteristic of the ultimatum game, a behavioral economics experiment, is:

Accepted Answer

One player proposes a division of resources, and the other player can either accept or reject it

Answer

Both players make simultaneous offers

Answer

The game is played repeatedly over multiple rounds

Answer

The outcome is determined by a random chance mechanism

Question 29

In a game with multiple Nash equilibria, what is true?

Accepted Answer

The equilibrium played depends on the initial conditions.

Answer

The equilibrium played is always Pareto efficient.

Answer

The equilibrium played always maximizes the sum of the players' payoffs.

Answer

The game is necessarily unstable.

Question 30

What is a key finding from the ultimatum game in behavioral economics?

Accepted Answer

Individuals often reject unfair offers even if it means they receive nothing

Answer

Individuals are highly rational and always make self-interested decisions

Answer

The game is always played in a Nash equilibrium

Answer

The game accurately predicts real-world bargaining behavior

Question 31

Which of the following is a distinguishing feature of behavioral economics?

Accepted Answer

Incorporating psychological factors into economic models

Answer

Assuming that individuals are perfectly rational

Answer

Focusing solely on market equilibrium

Answer

Rejecting the use of mathematics in economic analysis

Question 32

Which of the following is an example of a public good?

Accepted Answer

A national park

Answer

A private car

Answer

A television show

Answer

A restaurant meal

Question 33

Enhanced: In a Cournot oligopoly, what do firms primarily compete on?

Accepted Answer

Quantity

Answer

Price

Answer

Collusion

Answer

Individual profit maximization

Question 34

Improved: In a signaling game, a sender with private information aims to do what by sending a message?

Accepted Answer

Reveal their type

Answer

Randomly choose a signal

Answer

Guarantee perfect understanding

Answer

Maintain credibility by always sending the same signal

Question 35

In a perfectly competitive market, what does the long-run equilibrium price equal for a representative firm?

Accepted Answer

Marginal cost

Answer

Average variable cost

Answer

Total variable cost

Answer

Fixed cost

Question 36

In perfect competition, which assumption implies that firms have no influence over pricing?

Accepted Answer

Firms are price receivers.

Answer

Firms are price setters.

Answer

Market entry is restricted.

Question 37

In a perfectly competitive market, what is the shape of the demand curve faced by an individual firm?

Accepted Answer

Perfectly elastic

Answer

Vertical

Answer

Downward sloping

Answer

Upward sloping

Question 38

In a perfectly competitive market, what does the demand curve for a single firm look like?

Accepted Answer

Horizontal

Answer

Downward sloping

Answer

Upward sloping

Answer

Parabolic

Question 39

In a perfectly competitive market, what is the MAIN purpose of price?

Accepted Answer

Determine quantities supplied and demanded

Answer

Measure industry profits

Answer

Indicate product quality

Question 40

In a perfectly competitive market, the demand curve faced by each firm is best described as:

Accepted Answer

Horizontal

Answer

Sloping downward

Answer

Sloping upward

Answer

Vertical

Question 41

Analyze the strengths and limitations of Nash Equilibrium as a solution concept in game theory. Discuss alternative solution concepts and their applicability in different game scenarios.

Accepted Answer

Alternative solution concepts, such as Subgame Perfect Nash Equilibrium, can complement Nash Equilibrium by addressing some of its limitations.

Answer

Nash Equilibrium is universally optimal and applicable in all game scenarios.

Answer

Behavioral game theory concepts, like bounded rationality and heuristics, are not relevant when evaluating solution concepts in game theory.

Answer

The choice of solution concept in game theory is independent of the specific game scenario and context.

Question 42

Which assumption of game theory is not always applicable in real-world scenarios?

Accepted Answer

Players are always perfectly rational and have perfect foresight.

Answer

Players have complete information about the actions and strategies of other players.

Answer

The outcome is determined by the actions of all players.

Question 43

In an asymmetric information market, which issue arises when sellers know more about the quality of their products than buyers?

Accepted Answer

Adverse selection.

Answer

Perfect competition.

Answer

Moral hazard.

Answer

Monopoly.

Question 44

Which characteristic distinguishes behavioral economics from traditional economic theory?

Accepted Answer

Incorporates cognitive biases and heuristics into decision-making models.

Answer

Focuses solely on mathematical models to predict behavior.

Answer

Assumes fully rational and self-interested individuals.

Answer

Relies only on experimental data to draw conclusions.

Question 45

In a Cournot oligopoly model with n identical firms, what quantity should each firm produce at the Cournot-Nash equilibrium?

Accepted Answer

Q = (1/n) * (D/R)

Answer

Q = (1/n) * (R/D)

Answer

Q = n/(n+1) * (D/R)

Question 46

In a principal-agent problem, which strategy can help align incentives and mitigate agency costs?

Accepted Answer

Designing contracts that reward agents for achieving specific performance targets.

Answer

Hiring agents with impeccable moral character.

Answer

Imposing strict regulations to control agent behavior.

Answer

Providing agents with complete information to eliminate uncertainty.

Question 47

In behavioral game theory, which concept acknowledges that individuals may have limited cognitive abilities and make decisions based on heuristics?

Accepted Answer

Bounded rationality.

Answer

Dominant strategy.

Answer

Nash equilibrium.

Answer

Perfect information.

Question 48

In a market with externalities, why might market equilibrium fail to achieve an efficient allocation of resources?

Accepted Answer

The costs or benefits generated by an economic activity may not be fully reflected in the market price, leading to under or over-consumption.

Answer

Government intervention always leads to efficient outcomes in markets with externalities.

Answer

The free market always ensures that resources are allocated efficiently, regardless of externalities.

Answer

Externalities never have any impact on the efficiency of market outcomes.

Question 49

Which type of information asymmetry arises when buyers have more information about their willingness to pay for a product or service than sellers?

Accepted Answer

Adverse selection.

Answer

Moral hazard.

Answer

Perfect information.

Answer

Signaling.

Question 50

In a Nash equilibrium, what is the key condition that must be satisfied for each player's strategy?

Accepted Answer

No player can improve their payoff by unilaterally changing their strategy.

Answer

Each player's strategy must be dominant over the strategies of all other players.

Answer

Nash equilibrium is only possible in games with complete information.

Answer

The sum of all players' payoffs is maximized at Nash equilibrium.

Question 51

In an informationally asymmetric market, which of the following situations is most likely to lead to market failure?

Accepted Answer

Sellers have more information about the product quality than buyers

Answer

Buyers and sellers have equal access to information

Answer

Buyers have more information about the product quality than sellers

Question 52

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

Accepted Answer

No player can improve their payoff by unilaterally changing their strategy

Answer

The equilibrium outcome is always Pareto optimal

Answer

All players have the same payoff at equilibrium

Question 53

In an oligopolistic market, which of the following pricing strategies is most likely to result in collusion?

Accepted Answer

Price leadership

Answer

Bertrand competition

Answer

Perfect competition

Answer

Cournot competition

Question 54

Which of the following is a behavioral economics concept that describes the tendency for individuals to weigh losses more heavily than gains?

Accepted Answer

Loss aversion

Answer

Prospect theory

Answer

Risk aversion

Answer

Status quo bias

Question 55

In an auction setting where bidders have private information about their valuations, which of the following auction mechanisms is likely to generate the highest expected revenue for the seller?

Accepted Answer

Second-price sealed-bid auction

Answer

First-price sealed-bid auction

Answer

Dutch auction

Answer

English auction

Question 56

Which of the following is a limitation of the rational expectations hypothesis?

Accepted Answer

Economic agents may not have perfect foresight and can make errors in predicting economic outcomes

Answer

The hypothesis is universally applicable and has been empirically validated in all cases

Answer

The hypothesis assumes that individuals are completely rational and make optimal decisions

Question 57

Which of the following is a key feature of a Pareto efficient allocation?

Accepted Answer

It is impossible to improve the welfare of one individual without making someone else worse off

Answer

It is the outcome of a perfectly competitive market

Answer

It maximizes the total surplus in the economy

Question 58

**Which of the following is a fundamental assumption of Nash equilibrium?**

Accepted Answer

**Each player has a complete understanding of the strategies available to all other players and selects the strategy that maximizes their own payoff given those strategies.**

Answer

Players are perfectly rational and have access to all relevant information.

Question 59

**In the context of information economics, what is a central challenge posed by information asymmetry?**

Accepted Answer

**One party to a transaction possesses superior or more accurate knowledge than the other party.**

Answer

Acquiring the necessary information is prohibitively expensive.

Answer

The available information is complex and challenging to comprehend.

Question 60

**Which key insight is highlighted by behavioral economics?**

Accepted Answer

**Individuals' decision-making processes are not always fully rational and can be influenced by emotions or cognitive biases.**

Answer

Consumers invariably make choices that maximize their welfare.

Answer

Markets consistently operate at optimal efficiency levels.

Question 61

**In a principal-agent model, what is the primary difficulty?**

Accepted Answer

**The principal's inability to fully monitor the agent's actions, leading to potential conflicts of interest.**

Answer

The principal and agent have inherently misaligned goals.

Answer

The agent possesses greater knowledge than the principal.

Question 62

**Which of the following is not a characteristic of market failure?**

Accepted Answer

**Perfect competition, where numerous firms operate independently and no single entity has significant market power.**

Answer

Public goods, which are non-excludable and non-rivalrous in consumption.

Answer

Externalities, where the actions of one party affect others without compensation.

Question 63

**In the Cournot model of oligopoly, what is the defining characteristic of the Nash equilibrium outcome?**

Accepted Answer

**Each firm selects its output level to maximize its profit, taking into account the anticipated output levels of its competitors.**

Answer

Firms engage in non-price competition, such as product differentiation.

Answer

Firms collude to set a common price and production quota.

Question 64

**Which characteristic is distinctive to a natural monopoly?**

Accepted Answer

**Substantial fixed costs combined with low marginal costs, resulting in a single firm being the most efficient provider.**

Answer

Unrestricted entry and exit from the market.

Answer

Perfect information availability for all market participants.

Answer

A large number of small firms competing in the market.