Question 1

Music is a network good because:

Accepted Answer

A)  most people want to listen to music that is popular. 
B)  music that is popular is a more valuable good. 
C)  music that is popular offers more benefits to the listener than does music that is obscure. 
D)  All of the answers are correct. 
A)  most people want to listen to music that is popular. 
B)  music that is popular is a more valuable good. 
C)  music that is popular offers more benefits to the listener than does music that is obscure. 
D)  All of the answers are correct.

Question 2

Which statement is TRUE?

Accepted Answer

A)  The Nash equilibrium always maximizes social welfare. 
B)  Coordination games will always minimize total costs. 
C)  Coordination games always result in a Nash equilibrium outcome. 
D)  There is only one Nash equilibrium outcome for each coordination game. 
A)  The Nash equilibrium always maximizes social welfare. 
B)  Coordination games will always minimize total costs. 
C)  Coordination games always result in a Nash equilibrium outcome. 
D)  There is only one Nash equilibrium outcome for each coordination game.

Question 3

Which is NOT a factor that increases the contestability of markets?

Accepted Answer

A)  Fixed costs of market entry are low, relative to potential revenue. 
B)  The incumbent has no unique, hard-to-replicate resource. 
C)  Consumers are not open to the prospect of dealing with a new competitor. 
D)  There are few or no legal barriers to entry. 
A)  Fixed costs of market entry are low, relative to potential revenue. 
B)  The incumbent has no unique, hard-to-replicate resource. 
C)  Consumers are not open to the prospect of dealing with a new competitor. 
D)  There are few or no legal barriers to entry.

Question 4

When a high fixed cost of production exists, markets are:

Accepted Answer

A)  easily contested. 
B)  difficult to contest. 
C)  moderately difficult to contest. 
D)  uncontestable. 
A)  easily contested. 
B)  difficult to contest. 
C)  moderately difficult to contest. 
D)  uncontestable.

Question 5

Firms that produce goods that are the dominant standard goods in the market typically sell these goods at:

Accepted Answer

A)  a loss. 
B)  a higher price than in a competitive market. 
C)  a lower price than in a competitive market. 
D)  marginal cost. 
A)  a loss. 
B)  a higher price than in a competitive market. 
C)  a lower price than in a competitive market. 
D)  marginal cost.

Question 6

If all the major bookstores offer customer loyalty plans, it's possible that the:

Accepted Answer

A)  demand curve facing each store will become more elastic. 
B)  demand curve facing each store will become more inelastic. 
C)  supply curve facing each store will become more elastic. 
D)  supply curve facing each store will become more inelastic. 
A)  demand curve facing each store will become more elastic. 
B)  demand curve facing each store will become more inelastic. 
C)  supply curve facing each store will become more elastic. 
D)  supply curve facing each store will become more inelastic.

Question 7

When a high fixed cost of production exists, markets are:

Accepted Answer

A)  less likely to be monopolized. 
B)  more likely to be monopolized. 
C)  never monopolized. 
D)  always monopolized. 
A)  less likely to be monopolized. 
B)  more likely to be monopolized. 
C)  never monopolized. 
D)  always monopolized.

Question 8

Microsoft's market power stems from:

Accepted Answer

A)  its control over a scarce resource. 
B)  economies of scale. 
C)  its product compatibility with a lot of other products. 
D)  being a government-created monopoly. 
A)  its control over a scarce resource. 
B)  economies of scale. 
C)  its product compatibility with a lot of other products. 
D)  being a government-created monopoly.

Question 9

Facebook possesses:

Accepted Answer

A)  contestable market power. 
B)  uncontestable market power. 
C)  no market power. 
D)  hard-to-contest market power. 
A)  contestable market power. 
B)  uncontestable market power. 
C)  no market power. 
D)  hard-to-contest market power.

Question 10

Loyalty plans are used for each of the following reasons, EXCEPT:

Accepted Answer

A)  to raise switching costs. 
B)  to arbitrage tax law. 
C)  to lower prices in equilibrium. 
D)  to price discriminate. 
A)  to raise switching costs. 
B)  to arbitrage tax law. 
C)  to lower prices in equilibrium. 
D)  to price discriminate.

Question 11

A network good is a good whose value to one consumer decreases when other consumers use the same good.

Accepted Answer

A) True 
 B)False

Question 12

When players are better off using the same strategy rather than different strategies, economists refer to this as:
I. Nash equilibrium.
II. coordination game.
III. dominant strategy.
IV. prisoner's dilemma.

Accepted Answer

A)  I only 
B)  II only 
C)  I and II only 
D)  I, II, III, and IV 
A)  I only 
B)  II only 
C)  I and II only 
D)  I, II, III, and IV

Question 13

Netflix keeps track of everything you watch to better recommend new titles to you. While this obviously encourages you to use Netflix and keep the service, how does it help Netflix's bottom line?

Accepted Answer

A)  It lowers the average total cost. 
B)  It constrains contestability. 
C)  It discourages antitrust action. 
D)  It aids in Netflix's standards war. 
A)  It lowers the average total cost. 
B)  It constrains contestability. 
C)  It discourages antitrust action. 
D)  It aids in Netflix's standards war.

Question 14

An experiment by Duncan J. Watts, a sociologist at Columbia University, showed that when consumers knew a particular song had been downloaded by many other people, more consumers wanted to download that song as well. If this is true, this suggests that music itself may be:

Accepted Answer

A)  a competitive good. 
B)  a network good. 
C)  a system good. 
D)  an association good. 
A)  a competitive good. 
B)  a network good. 
C)  a system good. 
D)  an association good.

Question 15

Why are network goods usually sold by monopolies or oligopolies?

Accepted Answer

Because a network good is a good whose v

Question 16

Network goods are usually sold by:

Accepted Answer

A)  monopolistically competitive firms or monopolies. 
B)  oligopolies or perfectly competitive firms. 
C)  perfectly competitive firms or monopolistically competitive firms. 
D)  monopolies or oligopolies. 
A)  monopolistically competitive firms or monopolies. 
B)  oligopolies or perfectly competitive firms. 
C)  perfectly competitive firms or monopolistically competitive firms. 
D)  monopolies or oligopolies.

Question 17

Suppose that some people drive on the left side of the road and some people drive on the right side of the road. Is this a Nash equilibrium?

Accepted Answer

A)  Yes, because no player has an incentive to change his or her strategy unilaterally. 
B)  Yes, because each person would prefer to unilaterally change strategies. 
C)  No, because no player has an incentive to change his or her strategy unilaterally. 
D)  No, because each person would prefer to unilaterally change strategies. 
A)  Yes, because no player has an incentive to change his or her strategy unilaterally. 
B)  Yes, because each person would prefer to unilaterally change strategies. 
C)  No, because no player has an incentive to change his or her strategy unilaterally. 
D)  No, because each person would prefer to unilaterally change strategies.

Question 18

Which statement is FALSE?

Accepted Answer

A)  Network goods are usually sold by monopolies or oligopolies. 
B)  When networks are important the "best" products usually win. 
C)  Standard wars are common in establishing network goods. 
D)  Competition in network goods is for the market, not in the market. 
A)  Network goods are usually sold by monopolies or oligopolies. 
B)  When networks are important the "best" products usually win. 
C)  Standard wars are common in establishing network goods. 
D)  Competition in network goods is for the market, not in the market.

Question 19

Competition for the market rather than in the market:

Accepted Answer

A)  is the reason why Friendster is no longer the leading social network. 
B)  explains why Microsoft Word is the leading word processing network. 
C)  means that Facebook may one day no longer be one of the leading social networks. 
D)  All of the answers are correct. 
A)  is the reason why Friendster is no longer the leading social network. 
B)  explains why Microsoft Word is the leading word processing network. 
C)  means that Facebook may one day no longer be one of the leading social networks. 
D)  All of the answers are correct.

Question 20

Consider the "market" for interpersonal greetings. In many Western countries, the expected form of greeting is a handshake. In many Eastern countries, the expected form of greeting is a bow. Both greetings "work" in the sense that they function as a form of acknowledging the other person, but bows are superior to handshakes because handshakes spread germs and bows don't. Why is it that handshakes persist in the West if bows are better?

Accepted Answer

A)  No one wants to be the only one who bows when everyone else shakes hands. 
B)  People in the West are unaware that handshakes spread germs. 
C)  People in the West do not know how to bow, but do know how to shake hands. 
D)  Handshakes are not a Nash equilibrium. 
A)  No one wants to be the only one who bows when everyone else shakes hands. 
B)  People in the West are unaware that handshakes spread germs. 
C)  People in the West do not know how to bow, but do know how to shake hands. 
D)  Handshakes are not a Nash equilibrium.

Exam 16: Competing for Monopoly

Music is a network good because:

Which statement is TRUE?

Which is NOT a factor that increases the contestability of markets?

When a high fixed cost of production exists, markets are:

Firms that produce goods that are the dominant standard goods in the market typically sell these goods at:

If all the major bookstores offer customer loyalty plans, it's possible that the:

When a high fixed cost of production exists, markets are:

Microsoft's market power stems from:

Facebook possesses:

Loyalty plans are used for each of the following reasons, EXCEPT:

A network good is a good whose value to one consumer decreases when other consumers use the same good.

When players are better off using the same strategy rather than different strategies, economists refer to this as: I. Nash equilibrium. II. coordination game. III. dominant strategy. IV. prisoner's dilemma.

Netflix keeps track of everything you watch to better recommend new titles to you. While this obviously encourages you to use Netflix and keep the service, how does it help Netflix's bottom line?

An experiment by Duncan J. Watts, a sociologist at Columbia University, showed that when consumers knew a particular song had been downloaded by many other people, more consumers wanted to download that song as well. If this is true, this suggests that music itself may be:

Why are network goods usually sold by monopolies or oligopolies?

Network goods are usually sold by:

Suppose that some people drive on the left side of the road and some people drive on the right side of the road. Is this a Nash equilibrium?

Which statement is FALSE?

Competition for the market rather than in the market:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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