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Economics 2
your name _______________________________
Winter 2011
your TA’s name __________________________
day and time of your discussion section ________
your student id number _____________________
PRACTICE EXAM 2B
DIRECTIONS: No calculators, books, or notes of any kind are allowed.
All papers and notebooks
must remain closed and on the floor at all times throughout the exam, and students are not allowed to
leave the examination room until finished.
Answer all questions in the space provided with the exam.
HINTS: Feel free to use either of the following formulas if you find them useful.
Area of a triangle
= (1/2) (base) (height)
Area of a trapezoid
= (1/2) (base1 + base2) (height)
PART I: MULTIPLE CHOICE—circle the correct answer (4 points each, 68 points total)
Questions 1 through 3 refer to an advertising game between Alice’s company and Bonnie’s company.
Alice advertises
Alice doesn’t advertise
Bonnie advertises
Alice gets 20
Alice gets 30
Bonnie gets 40
Bonnie gets 20
Alice gets 40
Alice gets 50
Bonnie doesn’t advertise
Bonnie gets 30
Bonnie gets 10
1.) Which of the following statements is correct?
a.) Alice has a dominant strategy and Bonnie has a dominant strategy
b.) Alice has a dominant strategy but Bonnie does not have a dominant strategy
c.) Alice does not have a dominant strategy but Bonnie does have a dominant strategy
d.) Alice does not have a dominant strategy and Bonnie does not have a dominant strategy
2.) How would you characterize the Nash equilibrium for this game?
a.) Alice gets 20, Bonnie gets 40
b.) Alice gets 30, Bonnie gets 20
c.) Alice gets 40, Bonnie gets 30
d.) Alice gets 50, Bonnie gets 10
3.) How would you characterize this game?
a.) prisoner’s dilemma
b.) ultimatum bargaining game
c.) titfortat
d.) none of the above
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4.) If a player in a game is unable to make a credible threat, we describe that as
a.) absence of a dominant strategy
b.) absence of a dominated strategy
c.) absence of Nash equilibrium
d.) a commitment problem
5.) If consumption of a particular good imposes an external cost on others, then in a competitive
equilibrium,
a.) the quantity of the good that gets produced will be less than is socially efficient
b.) the quantity of the good that gets produced will be more than is socially efficient
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 Spring '08
 Kim
 Economics, Externality, Alice, Dominant strategy, Bonnie

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