Briefly explain why often two firms could both be made better off by cooperating, but they fail to cooperate.
What will be an ideal response?
This is the duopolists' dilemma. In this situation, while both firms are better off by cooperating, the dominant strategy is to renege on any agreement and end up with a lower outcome.
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A possible reason a nation might impose a protectionist policy such as a tariff is to
A) encourage specialization in the good in which the nation has a comparative advantage. B) protect an infant industry from foreign competitors. C) increase the level of imports. D) slow domestic production.
An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE
A) is a fixed market-basket price index that does not allow the mix of products to change each year. B) includes the prices of consumer services, but not consumer goods. C) includes the prices of more consumer goods and services. D) includes the prices of consumer goods, but not consumer services.
Economic growth is shown by
A) a point near the top of the production possibilities curve. B) a point outside the production possibilities curve. C) an inward shift of the production possibilities curve. D) an outward shift of the production possibilities curve.
Which of the following cultural events likely increased the demand for the associated product?
A) the banning of cigarette advertising on television B) the inclusion of Reese's Pieces in the movie E.T. C) increased environmental awareness about the impacts of sport utility vehicles (SUVs) D) concerns over "Mad Cow" disease in beef