Advanced Microeconomic Theory: Master Market Behavior and Strategic Decision-Making

Question 1

In a dominant strategy equilibrium, each player selects the strategy that:

Accepted Answer

Maximizes their payoff regardless of other players' choices

Answer

Minimizes their opponent's payoff

Answer

Balances their own payoff with their opponent's payoff

Answer

Is randomly chosen

Question 2

Behavioral economics primarily focuses on:

Accepted Answer

The psychological and cognitive factors influencing economic decision-making

Answer

The purely rational and logical decision-making models used in traditional economics

Answer

The role of institutions in shaping economic outcomes

Answer

The impact of social factors on economic behavior

Question 3

In a natural monopoly market structure, which of the following is true:

Accepted Answer

Monopoly is the most efficient market structure

Answer

Perfect competition is the most efficient market structure

Answer

Oligopoly is the most efficient market structure

Answer

None of the above, as competition is always more efficient than monopoly

Question 4

In the classic 'prisoner's dilemma' game theory scenario, the dominant strategy for each player is to:

Accepted Answer

Defect, even though it can lead to a lower joint payoff

Answer

Cooperate, as it leads to the highest joint payoff

Answer

Randomly choose between cooperating and defecting

Answer

Communicate with the other player to reach a mutually beneficial outcome

Question 5

Perfect information in game theory means that players:

Accepted Answer

Know the actions and outcomes of all other players

Answer

Know their own actions and outcomes but not necessarily those of others

Answer

Have incomplete information about the game

Answer

Have no information about the game

Question 6

In a Cournot oligopoly, firms compete primarily by:

Accepted Answer

Setting their output levels simultaneously

Answer

Setting their prices simultaneously

Answer

Taking turns setting their prices

Answer

Colluding to set a joint output level

Question 7

Asymmetric information in the insurance market can lead to:

Accepted Answer

Both adverse selection and moral hazard

Answer

Adverse selection

Answer

Moral hazard

Answer

Neither adverse selection nor moral hazard

Question 8

According to the kinked demand curve model in industrial organization, firms:

Accepted Answer

May not adjust their output in response to small changes in market demand

Answer

Will always increase their output in response to increases in market demand

Answer

Will always decrease their output in response to decreases in market demand

Answer

Will randomly adjust their output in response to changes in market demand

Question 9

Which of the following is a central assumption of Nash equilibrium?

Accepted Answer

Players are rational and aim to maximize their payoffs.

Answer

Players have complete information about their opponents' strategies.

Answer

The game is repeated infinitely often.

Answer

All players' strategies are public knowledge.

Question 10

In a game with incomplete information, which statement accurately reflects the players' knowledge?

Accepted Answer

Players have diverging beliefs about the parameters of the game.

Answer

Players are fully aware of the payoffs for all possible actions.

Answer

Players have full knowledge of the strategies of their opponents.

Answer

The game is always played as a single-round game.

Question 11

Which of the following is a key insight derived from behavioral economics?

Accepted Answer

People's preferences can be influenced by various cognitive biases.

Answer

People always make decisions based on rational calculations.

Answer

Perfect competition always leads to efficient market outcomes.

Answer

Government intervention is always detrimental to economic well-being.

Question 12

Which market structure is defined by a few dominant firms controlling a substantial portion of the market?

Accepted Answer

Oligopoly

Answer

Perfect competition

Answer

Monopoly

Answer

Monopolistic competition

Question 13

What is the primary objective of public economics?

Accepted Answer

Maximizing societal welfare

Answer

Minimizing government expenditures

Answer

Ensuring rapid economic growth

Answer

Promoting unrestricted international trade

Question 14

Which characteristic is unique to a Bayesian Nash equilibrium?

Accepted Answer

Players adjust their beliefs based on observed actions during the game.

Answer

Players are aware of the actual state of the world.

Answer

Players share common beliefs about the state of the world before the game begins.

Answer

The game is played sequentially.

Question 15

Which of the following is a fundamental theorem in game theory?

Accepted Answer

Nash's Theorem

Answer

Arrow's Impossibility Theorem

Answer

Coase's Theorem

Answer

Prisoner's Dilemma

Question 16

In a Cournot duopoly, how does a firm determine its optimal output level?

Accepted Answer

By selecting the output that maximizes its own individual profit.

Answer

By choosing the output that maximizes the combined profit of both firms.

Answer

By setting marginal cost equal to marginal revenue.

Answer

By aiming for the highest possible market share.

Question 17

In game theory, a Nash equilibrium is a situation where:

Accepted Answer

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

Answer

One player has a dominant strategy and the others have no strategy to counter it.

Answer

The total payoff to all players is maximized.

Answer

The game is fair and balanced.

Question 18

Asymmetric information in the insurance market can lead to:

Accepted Answer

Both of the above.

Answer

Adverse selection, where individuals with higher risks are more likely to purchase insurance.

Answer

Moral hazard, where individuals with insurance are more likely to engage in risky behavior.

Answer

Neither of the above.

Question 19

In game theory, a Nash equilibrium occurs when:

Accepted Answer

Each player's strategy is a best response to the other players' strategies, given their beliefs about their opponents' strategies.

Answer

The payoff to each player is the same, regardless of their strategy.

Answer

The total payoff to all players is maximized.

Answer

The probability of winning is equal for all players.

Question 20

Asymmetric information is characterized by:

Accepted Answer

One or more parties possessing more information than others.

Answer

All parties having the same level of information.

Answer

Information being evenly distributed among all parties.

Answer

Absence of barriers to information sharing.

Question 21

Behavioral economics primarily examines:

Accepted Answer

Individual decision-making in real-world contexts.

Answer

Profit maximization strategies for firms in competitive markets.

Answer

Government resource allocation mechanisms.

Answer

Macroeconomic behavior of the economy.

Question 22

In an oligopoly, a kinked demand curve arises primarily due to:

Accepted Answer

Fear of retaliation from competitors.

Answer

Government intervention.

Answer

Elasticity of demand.

Answer

High barriers to entry.

Question 23

The Coase theorem suggests that:

Accepted Answer

Private negotiations can potentially resolve externalities.

Answer

Government intervention is essential to address externalities.

Answer

Property rights are irrelevant in resolving externalities.

Answer

Externalities are solely a problem in perfectly competitive markets.

Question 24

A Pareto improvement occurs when:

Accepted Answer

At least one individual's well-being improves without worsening others'.

Answer

All individuals' well-being improves equally.

Answer

The overall welfare of society decreases.

Answer

Wealth is redistributed by the government.

Question 25

In a Bertrand oligopoly, firms primarily compete based on:

Accepted Answer

Price.

Answer

Quantity.

Answer

Innovation.

Answer

Advertising.

Question 26

A primary objective of public economics is to:

Accepted Answer

Maximize social well-being.

Answer

Minimize government involvement.

Answer

Promote economic growth.

Answer

Reduce unemployment.

Question 27

In an asymmetric information game, a signaling equilibrium occurs when:

Accepted Answer

One player transmits a credible signal to communicate their private information.

Answer

Both players possess complete information about each other.

Answer

There is no uncertainty regarding players' actions.

Answer

The game is played repeatedly.

Question 28

A potential limitation of behavioral economics is:

Accepted Answer

Difficulty in generalizing findings across different contexts.

Answer

Excessive emphasis on individual decision-making.

Answer

Inadequate empirical evidence supporting its theories.

Answer

Bias toward specific policy interventions.

Question 29

In a sequential game, a player's actions in one stage:

Accepted Answer

Can affect the payoffs in subsequent stages.

Answer

Cannot affect the payoffs in subsequent stages.

Answer

Are independent of the actions taken by other players.

Answer

Are always optimal for the player, regardless of the other players' actions.

Question 30

Which of the following is a major criticism of behavioral economics?

Accepted Answer

It relies too heavily on stylized laboratory experiments.

Answer

It fails to account for the role of emotions in economic decision-making.

Answer

It is not applicable to real-world economic scenarios.

Answer

It undermines the rational expectations hypothesis.

Question 31

In a game of incomplete information, a player's strategy:

Accepted Answer

Is based on probabilistic beliefs about the other players' strategies.

Answer

Is based on perfect information about the other players' strategies.

Answer

Is always dominant.

Answer

Is irrelevant, as the outcome is determined by chance.

Question 32

The social welfare function is used in public economics to:

Accepted Answer

Measure the overall well-being of society.

Answer

Determine the optimal level of public goods.

Answer

Predict the behavior of firms and consumers.

Answer

Calculate the cost of government programs.

Question 33

Identify the characteristic that is NOT a part of a dominant strategy in game theory.

Accepted Answer

Requiring cooperation among all players

Answer

Maximizing the player's payoff regardless of other players' strategies

Answer

Remaining stable and cannot be improved upon by any unilateral deviation

Answer

Minimizing potential losses risk-averse

Question 34

Which of the following accurately defines asymmetric information in a market?

Accepted Answer

One party possesses more information than the other about a specific aspect of the transaction

Answer

Both parties have equal access to the same information

Answer

One party is being dishonest or deceptive

Answer

The market lacks competition

Question 35

Which key assumption underpins behavioral economics?

Accepted Answer

People's emotions influence their decisions, leading to irrational choices

Answer

People always make rational decisions in their best interests

Answer

People prioritize the well-being of others over their own self-interest

Answer

People consistently avoid uncertain outcomes and prefer risk-aversion

Question 36

What is the primary focus of industrial organization's examination?

Accepted Answer

The structure, conduct, and performance of markets

Answer

Government's role in regulating industries

Answer

Technology's impact on market competition

Answer

Individual firms' financial performance

Question 37

Which of the following qualifies as a Nash equilibrium?

Accepted Answer

A set of strategies where no player can enhance their payoff by changing their strategy alone

Answer

A set of strategies where all players fully cooperate

Answer

A set of strategies where one player maximizes their payoff at the expense of others

Answer

A set of strategies where the outcome remains uncertain

Question 38

In a partially observable game, players:

Accepted Answer

Have incomplete knowledge of other players' actions or the payoffs associated with different actions

Answer

Have complete knowledge of other players' actions

Answer

Have complete knowledge of the payoffs associated with different actions

Answer

Are permitted to communicate before making decisions

Question 39

Which of the following is NOT a type of market failure?

Accepted Answer

Information symmetry

Answer

Externalities

Answer

Public goods

Answer

Monopolies

Question 40

Why is behavioral economics considered important?

Accepted Answer

It encompasses all of the above

Answer

It reveals why people make seemingly irrational decisions

Answer

It guides the development of more effective policies

Answer

It demonstrates the impact of emotions on economic behavior

Question 41

Which of the following is a fundamental concept in behavioral economics?

Accepted Answer

Heuristics

Accepted Answer

Framing effects

Accepted Answer

Cognitive biases

Answer

Rational decision-making

Question 42

Which characteristic is a defining feature of externalities in economics?

Accepted Answer

Impact parties not directly involved

Answer

Internalized by the market

Answer

Always have a positive effect

Answer

Easily resolved through private negotiation

Question 43

Which of the following is a key feature of public goods?

Accepted Answer

Non-rivalrous

Answer

Excludability

Answer

Scarcity

Answer

High cost of production

Question 44

Which of the following is a defining characteristic of a dominant strategy in game theory?

Accepted Answer

It is the best choice for a player, regardless of the choices made by other players

Answer

It can change based on the strategies of other players

Answer

It yields the highest expected payoff for a player

Question 45

In industrial organization, which of the following market structures is characterized by a few dominant firms and high barriers to entry?

Accepted Answer

Oligopoly

Answer

Monopsony

Answer

Monopoly

Answer

Perfect competition

Question 46

Which of the following is a primary role of government in public economics?

Accepted Answer

Providing public goods

Answer

Eliminating all market failures

Answer

Maximizing corporate profits

Question 47

Which of the following is a key assumption of the theory of revealed preference?

Accepted Answer

Consumers behave rationally and consistently in their choices

Answer

Consumers have perfect information about all products

Answer

Consumers' preferences never change

Question 48

Which of the following is a distinguishing feature of behavioral economics compared to neoclassical economics?

Accepted Answer

Exploration of human biases and limitations

Answer

Emphasis on perfect rationality

Answer

Examination of market equilibrium

Answer

Use of mathematical models

Question 49

In game theory, a dominant strategy for a player is one that:

Accepted Answer

Yields the highest payoff, regardless of the actions of the other players

Answer

Maximizes the collective payoff of all players

Answer

Minimizes the payoff of the other players

Question 50

In asymmetric information contexts, the party with less information is referred to as the:

Accepted Answer

Agent

Answer

Principal

Answer

Verifier

Answer

Monitor

Question 51

Which of the following is a fundamental principle of behavioral economics?

Accepted Answer

Individuals are not always rational decision-makers

Answer

Markets are perfectly competitive

Answer

Firms maximize profits

Question 52

A primary objective of public economics is to:

Accepted Answer

Provide public goods and services

Answer

Maximize consumer surplus

Answer

Regulate private businesses

Answer

Promote economic growth

Question 53

In a Nash equilibrium, each player's strategy is a best response to the:

Accepted Answer

Strategies of the other players

Answer

Payoffs of the other players

Answer

History of the game

Answer

Random chance

Question 54

Behavioral economics suggests that individuals may be prone to:

Accepted Answer

Cognitive biases

Answer

Perfect rationality

Answer

Fully efficient decision-making

Answer

Complete self-control

Question 55

A monopoly firm can influence the market price primarily by:

Accepted Answer

Restricting output

Answer

Increasing demand

Answer

Improving product quality

Answer

Reducing costs

Question 56

A characteristic of public goods that can lead to market failure is:

Accepted Answer

Non-excludability

Answer

Rivalrous consumption

Answer

Profit maximization

Answer

Diminishing marginal utility

Question 57

In a sequential game with two stages, the player who moves first has a:

Accepted Answer

Potential strategic advantage

Answer

Equal probability of success

Answer

Disadvantage

Answer

No advantage or disadvantage