1. According to the theory covered in class, an optimal two-part tariff pricing scheme includes:
2. According to the theory covered in class:
3. The Regional Playback Control (RPC) system is an international convention set by the DVD Copy Control Association in California to divide the world into six DVD-markets: 1. US and Canada, 2. Europe and Japan, 3. Asia, 4. Oceania and Latin America and 5. Africa, Russia and Eastern Europe. Economic theory suggests that with this convention:
4. Automobile manufacturers supplying the Australian market produce cars with very distinctive features. Assume that each company tries to maximise its profit given what the other car producers are doing and given the car designs. This situation:
Could not be analysed with any existing oligopoly model because all oligopoly models assume product homogeneity.
Could be analysed by deriving price response functions from demand curves that take into account imperfect substitution of different car types.
Could be analyse with a standard Cournot model.
Could only be analysed as a cartel solution, and no other existing oligopoly model allows for product heterogeneity.
5. Suppose that you have been hired as an external consultant by Bigger Union movie theatres to estimate the optimal discounts for different type of consumers. Some data has been provided to you. Based on several surveys, data collection and previous experience, the inverse demands for different groups of consumers are as follows:
In addition, you know that Bigger Union has a contract with major US film distributors to play their movies. According to this contract, the distributors charge MC=6 $ per viewer, irrespective of which movie is played. This cost is considered to be the only relevant marginal cost.
The profit-maximising discount rate on the normal ticket price that applies to students is:
6. Under third-degree price discrimination, as the number of customer groups facing different prices increases, the market price outcome will approach: (1 points)
The perfect competition outcome.
The first-degree price discrimination outcome.
The single-price monopoly outcome.
The Bertrand competition outcome.
7. Asymmetric information may: (0.5 points)
8. In the Akerlof`s Market for Lemons model as covered in class, transactions go missing whenever:)
9. According to the theory covered in class, the profitability of insurance against uncertain outcomes will depend on (select all that apply): (1 points)
10. John can buy a lottery ticket for $10 that gives him the chance of winning $1,000,000 with a 1% winning probability. If John is a risk-lover (as per the definition covered in class), then: (1 points)
11. A conclusion of the asymmetric information tennis racquet eBay transaction case study developed in class was that:
12. Consider a pure-exchange general equilibrium model with two consumers, two goods and an initial endowment. Assuming that consumers have convex preferences, a Pareto improvement can be achieved through exchange:
13. In a classical Arrow-Debreu general equilibrium model, Walras Law guarantees that:
14.The First Welfare Theorem states that:
15. According to the welfare theory covered in the unit, which of the following statements is true?
16. The main outcome of the Condorcet Paradox is that:
17. An externality can be defined as:
A cost not internalised by markets that affects consumers only.
A cost not internalised by markets that affects consumers and/or producers.
A benefit not internalised by markets that affects consumers only.
A cost not internalised by markets that affects consumers and/or producers.
A cost or benefit not internalised by markets that affects consumers and/or producers.
18. Varian (2014, Ch. 35, Section 1) discusses the effects of a tobacco smoking externality in a model that was also studied in class. In this model:
Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) can be given to either the smoker or non-smoker.
Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) has to be given be given to the smoker (if they are given to the non-smoker, no trade would ever take place).
Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the initial allocation of rights to smoke (e.g. tradable permits that can be use to smoke) has to be given be given to the non-smoker (if they are given to the smoker, no trade would ever take place).
Trading between money and smoke concentration in the house can potentially improve the utility of both room-mates. In line with Coase Theorem, for that to occur we need well-defined property rights (i.e. rules and punishments for not following the rules) and the addition of rights to smoke (e.g. tradable permits that can be use to smoke) that have to be purchased from a government authority.
19. The high number of cars in Chaos City CBD generates a great deal of general public discontent. A practical policy solution leading to a reduced, socially desirable number of taxis that is consistent with Coase Theorem would be: (1 points)
20. Reconsider the production externality model covered in the lecture and as a tutorial problem. Suppose that AussieSteel and AussieFish merge and, according to the new contract, AussieSteel holds S per cent of the shares and AussieFish holds the remaining (100-S) per cent of the shares. If the profit level is used as the basis of comparison: (1 points)
Both firms could be potentially better-off, but only after the introduction of a trading scheme for contamination permits.
Both firms could be potentially better-off, as the optimal joint profit after merging will be greater than the sum of optimal profits before the merger. Furthermore, under the new agreement no Pigouvian tax or trading scheme for contamination permits would be needed.
Both firms cannot be simultaneously better-off after the merger, as the optimal joint profit after merging will be exactly the same as the sum of optimal profits before the merger.
Both firms could be potentially better-off, but only after the introduction of a Pigouvian tax or a trading scheme for contamination permits.
Both firms could be potentially better-off, but only after the introduction of a Pigouvian tax.
21. According to Inchauspe et al. (2018, pp. 82-83), in the global agenda negotiation game for reducing carbon-dioxide emissions:
Reference
Inchauspe, J., Aguilera, R., Packey, D., Burns, K., & Trueck, S. (2018). The Insertion of Australia and WA in International Gas and Oil Markets . Bankwest Curtin Economics Centre. Available at: https://bcec.edu.au/publications/gas-and-oil-prospects/
A cascade of unilateral national carbon policy implementation decisions will ultimately lead to full regulation of carbon emissions at global level.
When a country implements a carbon policy, this country "wins" as it attracts more industrial production and the other countries "lose", meaning that full cooperation in the implementation of carbon policies will never occur.
Unilateral carbon policy action by a country is always welcome, as it leads to reductions of global carbon emissions.
Unilateral action by a country may be undesirable, because of the leakage hypothesis. That is, the economic activity facing the heaviest burden in the country may end up re-locating to a country in which they produce more carbon emissions than initially (for example, due to older technologies, different combination of input factors, or more relaxed carbon policies), raising the global level of carbon emissions as a net effect.
22.To provide public goods at different government levels, Australian authorities typically rely on tenders. The tender defines the terms and conditions for the provision of the public good, and the project is allocated to the best bidder from the private environment, often with the aid of some auction setting.
Would bidders be subject to the cartel behaviour penalties defined in the citation to the Competition and Consumer Act, Part IV Div. 1 in the Lecture 3 set of slides?
Cartel behaviour cannot apply to public goods because game theory demonstrates that public good bidders will never find incentive to cheat.
Agreements between competitors to fix prices, divide markets, rig bids or restrict output are not concepts that could possibly apply to auction environments.
Potentially, there could be agreements between bidders (competitors) to fix prices, divide markets, rig bids or restrict output.
Cartel behaviour applies to all tenders for provision of public goods by definition, but only those cases that cannot be resolved by the tender authority go to court.
23. Consider the following provision of public good problem:
Citizen 1 initial budget: w1 = 80,000 $
Citizen 2 initial budget: w2 = 60,000 $
Cost of public good: C = 40,000
Citizen 1 Utility Function: U1(x1,g) = 3(x1) + 90,000g
Citizen 2 Utility Function: U2(x2, g) = 2(x2) + 60,000g
Notation: xi is the budget that citizen i spends on goods other than the public good; g is a public good indicator variable which takes on the value 1 when the public good is provided and zero otherwise.
Given this information, Citizen 2’s willingness to pay will be:
24. Consider the following provision of public good problem
Citizen 1 initial budget: w1 = 100,000 $
Citizen 2 initial budget: w2 = 80,000 $
Cost of public good: C = 60,000
Citizen 1 Utility Function: U1(x1,g) = 2(x1) + 120,000g
Citizen 2 Utility Function: U2(x2, g) = 2(x2) + 80,000g
Notation: xi is the budget that citizen i spends on goods other than the public good; g is a public good indicator variable which takes on the value 1 when the public good is provided and zero otherwise.
Given this information, the level of utility of citizen 2 when 1 pays and 2 free-rides will be (type it using two decimal places and no thousand separator, e.g. 200000.00):
25. In the problem presented in last question, you can conclude that:
26. Which of the following statements applies to the public good coordination game in the picture below?
27-Assume the following positive externality coordination game. A department of certain company employs workers A and B. The company has an internal training program that allocates up to 100 hours of training to the department. Initially, the manager decides to allocate n 0 =35 training hours to A and (1- n 0 )=65 hours are allocated to B. This decision is revised every week as follows: if one employee (say B) performs better than the other employee (A) at work, the manager allocates an extra hour to B and one less hour to A. The performance of each worker is measured with the functions B A ( n ) and B B ( n -1) represented on the diagram below.
The initial decision by the manager to allocate more hours to B was inadequate, because although B was the more skilled worker, Employer A had more potential.
The initial decision by the manager to allocate more hours to B was adequate, because B was the more skilled worker initially and hence had more potential.
"The weak (Employee A) will become weaker over time."
The initial decision by the manager to allocate more hours to B can be described as an adverse selection possibly caused by asymmetric information (not knowing enough about the potential of the workers).
"The strong (Employee B) will become stronger over time."
Both Employees A and B will end up with the same skill level.
28.To analyse attendance of events organised on Facebook.com, an economic coordination model is developed in Inchauspe (2021). According to this model (select all that apply):
(Accessible through Curtin Library`s website.)
All Facebook events should have zero attendance. The fact that some events are attended cannot be explained with the model in the paper.
A fundamental disadvantage of the tool that Facebook uses to organise events is that, by default, the initial assumption is that nobody is attending the event (i.e. it starts with a counter of zero and invitees can join the event). A recommended setting to circumvent coordination traps is to start by assuming full attendance by default, and then give users the opportunity to decline.
A trap of low, suboptimal attendance has likely affected most Facebook-organised events for which the "social participation constraint", and other assumptions in the paper, can be verified.
A trap of low, suboptimal attendance has likely affected most Facebook-organised events. including those that exhibit a "social participation constraint", and those that do not.
An event that is desirable to the participants under full-attendance will always be fully attended, irrespective of how the Facebook tool design.
Facebook users developed a "social participation constraint" in response to failure by the Facebook event organisation tool to attract attendance.
29-Considering all the theory covered in this unit, you can conclude that free markets will be Pareto-efficient if, among other things, you assume that (select all that apply): (0.5 points)
There are no monopolies or oligopolies.
Cartels and other collusive agreements or anticompetitive behaviour do not occur.
Public goods do not exist.
Voting agendas are not manipulated.
Externalities do not exist.
Information is perfect, in the sense that every market participant knows everything there is to know about the economy and the future.
30. Conducting your own investigation, discuss and analyse ONE of the following issues (choose one only):
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