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Multiple Choice Pre Quiz
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1

Buying and selling assets or commodities with the purpose of making profits from the fluctuations in prices is called:
A)speculation
B)arbitrage
C)hedging
D)risk taking
2

The purchase of a good or asset in one market for immediate resale in another market in order to profit from a price discrepancy is called:
A)speculation
B)arbitrage
C)hedging
D)risk taking
3

As a result of arbitrage, the price difference between two markets will generally be _______ than the _______ of moving the good from one market to the other.
A)less; marginal revenue
B)more; marginal revenue
C)less; cost
D)more; cost
4

An action that reduces the risks involved in owning an asset or commodity by making a counteracting sale of that asset is called:
A)speculation
B)arbitrage
C)hedging
D)risk taking
5

Speculative markets:
A)improve price
B)improve allocation patterns
C)transfer risks
D)all of the above.
6

A person is called _______ when the displeasure from losing a given amount of income is greater than the pleasure from gaining the same amount of income.
A)speculative
B)a risk taker
C)risk-averse
D)risk spreading
7

What do economists call a process that transfers large risk from one person to many people as small risks?
A)risk-averse
B)risk spreading
C)speculative
D)none of the above
8

Which of the following is a form of risk spreading?
A)speculation
B)gambling
C)investment
D)insurance
9

What do economists call a process that reduces a person's incentives to avoid or prevent a risky event and thereby changes the probability of loss?
A)adverse selection
B)moral hazard
C)asymmetric information
D)social insurance
10

What do economists call a situation in which people with the highest risk are the most likely to buy insurance?
A)adverse selection
B)moral hazard
C)asymmetric information
D)social insurance
11

What do economists call the situation where people know about their own health status or level of risk, but the insurance company does not?
A)adverse selection
B)moral hazard
C)asymmetric information
D)social insurance
12

Mandatory insurance provided by the government is called:
A)welfare
B)minimum insurance
C)subsistence insurance
D)social insurance
13

Game theory:
A)analyzes the way that two or more players choose strategies that jointly affect each other.
B)examines the supply and demand for video games.
C)analyzes the way that two or more players use supply and demand to determine market price.
D)none of the above.
14

A situation where the market is supplied by two firms that are deciding whether to engage in economic warfare of low prices is called:
A)the duopoly price game.
B)the prisoner's dilemma.
C)the pollution game.
D)none of the above.
15

A _______ arises when one player has a single best strategy no matter what strategy the other player follows.
A)prisoner's dilemma
B)payoff
C)dominant strategy
D)dominant equilibrium
16

When all players have a dominant strategy, economists call that a _______.
A)prisoner's dilemma
B)payoff
C)dominant strategy
D)dominant equilibrium
17

A Nash equilibrium can also be called:
A)cooperative equilibrium.
B)a noncooperative equilibrium.
C)a dominant strategy.
D)a dominant equilibrium.





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