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When you read the supply curve backwards, you get:
The marginal cost curve.
By summing up the marginal costs of production, it's possible to find:
The total cost, excluding fixed costs.
When we read the demand curve backwards, we get:
The marginal value curve
The consumer surplus describes
The amount of money saved by consumers, compared to the maximum amount they'd be willing to pay.
According to Alisa Moussaieff, the jewelry dealer featured in the video, people buy diamonds for emotional reasons and don't care about the price. In effect, she is claiming that the demand for diamonds:
Is inelastic
Which of the following assumptions of perfect competition does the previous question address?
Large number of buyers with perfect information about market conditions, and who can switch between suppliers at no cost.
Intel and AMD now split the CPU market, resulting in:
A duopoly
In response to AMD's new products, Intel will likely
Lower prices on their existing CPUs.
The entry of yet other competitors into the market, such as ARM (who designs the Snapdragon chip used in most Android phones), the CPU market may become:
An oligopoly or monopolistic competition.
The lower the [blank] for it's product, the more pricing power monopolies have over their market.
Elasticity of demand
Game theory is all about strategic interaction. What does "strategic" mean, in this context?
Each player is anticipating what all the other players are going to do, and adjusting their own choices accordingly.
What is an example of the Prisoner's Dilemma?
Two companies choose to advertise, even though they would both be better off if they agreed not to advertise at all.
The Nash equilibrium of the Prisoner's Dilemma is
Both players betray their partner
You and your extended family are having an argument about Thanksgiving. Your aunt Rosie and your aunt Mary both want to host the dinner at their house. However, while both sides want to get their way, they also both want to everyone to be together for thanksgiving (regardless of who hosts). This is an example of:
Battle of the sexes
The "Grudger" strategy
Starts with cooperating, but defects for the rest of time if the other player defects.
Which strategy won the 1980 repeated prisoner's dilemma tournament?
Tit for tat
Tit for tat involves:
Cooperating in the first round, then copying what the other play did the previous round.
Why might the tit-for-tat strategy be superior to the "grudger" strategy?
It can "forgive" another player even if it's been defected upon once.
According to Amy Duke, when acting under uncertain conditions, you should choose the course of action that maximizes the:
Expected Value
The expected value of an uncertain situation:
Describes the amount of money one would win or lose in that situation, averaged over many repetitions.
The expected value of a situation or game can be computed by:
Multiplying each outcome by its respective probability, then adding the results.
In microeconomics, "utility" describes:
The amount of satisfaction we get from a certain amount of income or money.
The principle of diminishing marginal utility says that people's utility functions follow the:
Law of diminishing returns
To explain risk aversion and the St. Petersburg paradox, we can assume that instead of maximizing expected value, people actually maximize
Expected Utility
Suppose you roll a single dice (with faces 1 through 6), and then are paid 3 times the amount you rolled. What's the expected value of this game?
10.5
Suppose that you are instead paid ten times the amount shown on the dice. What's the expected value of this game?
35.0
Suppose you're still rolling a single dice, but the game is as follows: If you roll an odd number, you lose 3 times that amount, but if you roll an even number, you win 3 times that amount. What's the expected value of this game?
1.5
Suppose you flip a coin. Heads, you get paid $200. Tails, you get paid $100. What is the expected value of this game?
150
Suppose you are instead offered $120 for sure instead of the previous game, and you accept this offer. This means you are:
Risk Averse
Suppose a person has utility function sqrtx, where x is the person's income. Use the calculator to find the expected utility from the game above. (That is a 50/50 chance of getting $100 or $200).
12.07
Suppose that the person instead is paid $150, for sure. What would be his or her utility, in that case?
12.24
Which of the following best summarizes the example in the previous 3 questions?
Although the game has the same expected value as $150 for sure, the expected utility of the sure $150 is higher.
In many cases, people respond more when a situation is framed in terms of
Potential losses
Which of the following is an example of the endowment effect?
People are quite possessive over an item that they received for free.
Consider the follow choice: You can play in a game where there is a 50/50 change of getting $0 or $100, or you can receive $50 for sure. According to a classical economist, most people prefer the second choice due to:
Diminishing marginal utility
However, a behavioral economists would explain this same situation by using:
Reference dependence
The availability heuristic says that:
We are biased towards options which are easier to recall or imagine.
Which of the following is an example of the availability heuristic?
You think large cities have higher crime rates because the names of those cities are more easily recalled.
