Tom and Jerry have been roommates for the past two years. During this period, they bought 11 CDs together. Now that each is taking his own apartment, they are deciding how to split their possessions. Tom suggests they take five CDs each and give the extra one to Arnold, their neighbor. Jerry, on the other hand, suggests they flip a coin to decide who gets the 11th CD. Assuming they neither like nor dislike being altruistic, which of the two suggestions is Pareto efficient?
A. Jerry's suggestion is Pareto efficient.
B. Both suggestions are Pareto efficient.
C. Tom's suggestion is Pareto efficient.
D. None of the suggestions is Pareto efficient.
Answer: A
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Management and a labor union are bargaining over how much of a $50 surplus to give to the union. The $50 is divisible up to one cent. The players have one shot to reach an agreement. Management has the ability to announce what it wants first, and then the labor union can accept or reject the offer. Both players get zero if the total amounts asked for exceed $50. Which of the following is NOT a Nash equilibrium?
A. Management requests $25 and the labor union accepts $25. B. Neither management requesting $50 and the labor union accepting $0 nor management requesting $30 and the labor union accepting $10 are Nash equilibria. C. Management requests $30 and the labor union accepts $10. D. Management requests $50 and the labor union accepts $0.
This graph shows the cost and revenue curves faced by a monopoly. 
According to the graph shown, if Q2 units are being produced, this monopolist:
A. is earning negative profits. B. is not maximizing profits. C. is producing where marginal costs are less than marginal revenue. D. should increase production.
Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:
A. a consumer surplus of $12 and Nathan experiences a producer surplus of $3. B. a producer surplus of $9 and Nathan experiences a consumer surplus of $3. C. a consumer surplus of $9 and Nathan experiences a producer surplus of $3. D. a producer surplus of $9 and Nathan experiences a producer surplus of $12.
The adverse selection problem suggests that:
A. the ratio of lemons (low quality) to plums (high quality) is likely to be high. B. the ratio of plums (high quality) to lemons (low quality) is likely to be high. C. the price of lemons (low quality) will be below buyer's willingness to pay. D. plums (high quality) will sell for more than most buyers' willingness to pay.