1. A Nash equilibrium will also be a dominant strategy equilibrium.
True/False. Explain your answer.
False. Whilst a dominant strategy equilibrium will also be a Nash
equilibrium the reverse is not necessarily true. Some games may not have a dominant strategy equilibrium but will nevertheless have Nash equilibria, for example the Battles of the ##被过滤##es.
2. For all inferior goods the income effect arising from a price increase outweighs the substitution effect. True/False. Explain your answer.
False. For most inferior goods the substitution effect outweighs the
income effect, it is only in the case of Giffen goods that the income
effect dominates. Students should at a produce a diagram illustrating
income and substitution effects for an inferior good.
3. The equilibrium in a monopsonistic labour market occurs where the
marginal revenue product of labour is equal to the average cost of labour.
True/False. Explain your answer.
False. The equilibrium occurs where the MRP =MC. Students should use a diagram to illustrate their answer.
4. The long-run average cost curve, the so-called 'envelope curve' cannot be tangential to the minimum point of each of the short-run average costs curves. True/False. Explain your answer.
True. Students should draw a series of SRAC curves, show how the LRAC
would be derived at indicate that the LRAC is only tangential to the
minimum point of one of the SRAC curves.
5. In general, the optimal level of a pollution externality is greater
than zero.
True/False. Explain your answer.
True. The optimal level of pollution is where MSB (demand) = MSC.
Students should use a diagram to illustrate their answer.