Game theory shows that cartels
A) should be expected
B) allow firms to maximize joint profits
C) allow firms to overcome the less desired outcome consistent with the prisoner's dilemma
D) All of the above
D) All of the above
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In a two-period model, as long as wealth effects are small, an increase in the world real interest rate
A) increases consumption and increases the current account surplus. B) increases consumption and decreases the current account surplus. C) decreases consumption and increases the current account surplus. D) decreases consumption and decreases the current account surplus.
Someone who is risk-preferring has
A) diminishing marginal utility of wealth. B) constant marginal utility of wealth. C) increasing marginal utility of wealth. D) less marginal utility of wealth than someone who is risk-preferring.
What would lead an economist to conclude that Theory A is superior to Theory B?
A) Theory A predicts real-world events better than does Theory B. B) The assumptions underlying Theory A are more realistic than are the assumptions underlying Theory B. C) Theory A explains how people think, whereas Theory B only explains what they do. D) Theory A is based on the assumption that an individual typically cannot determine what is in his or her own best interest, whereas Theory B assumes that each person knows what is in his or her own best interest and acts accordingly.
Voluntary agreements may not be a feasible method to internalize an externality when
A) the dollar value of the externality is large. B) the externality is negative rather than positive. C) there are significant transaction costs. D) there are high taxes on the firms that cause the externalities.