Question 1

​Economists love auctions because
A)​They maximize consumer surplus
B)They create efficiency by allotting the item to the highest-value bidder
C)They create efficiency by allotting the item to the lowest value bidder
D)​All of the above

Accepted Answer

Auctions are preferred by economists because they create efficiency by allotting the item to the highest-value bidder, ensuring that the item is purchased by the person who values it the most. This increases both producer and consumer surplus, making it the best choice. Option A is incorrect since auctions only maximize consumer surplus in the absence of colluding bidders or other distortions. Option C is incorrect since allotting the item to the lowest-value bidder compromises the value of the auction in terms of efficiency. Option D is incorrect since only option B is accurate.

Question 2

​An English auction is
A)​A sealed auction
B)An oral auction
C)An auction where bidders submit decreasing bids
D)​All of the above

Accepted Answer

An English auction is an oral auction where bidders openly submit increasing bids until no one is willing to bid any higher. Therefore, choice B is the correct answer. Sealed auctions involve written bids, and decreasing bids are not typical in English auctions.

Question 3

The more bidders there are at an oral auction,​
A)​the higher the expected selling price
B)the higher each bidder bids
C)the longer that each bidder will continue to bid
D)​the less each bidder will shade his bid

Accepted Answer

The more bidders there are at an oral auction, the greater the competition, which leads to higher bidding and increases the chances of the property being sold at a higher price. Consequently, choice A (the higher the expected selling price) is the correct option.

Question 4

​Auctions are valuable for selling items such as
A)​Art
B)Antiques
C)Custom jewelry
D)​All of the above

Accepted Answer

Auctions are beneficial for selling a wide range of items, including art, antiques, and custom jewelry, as well as other valuable goods like collectibles, rare books, and high-end fashion items. Auctions cater to collectors, investors, and enthusiasts who want to acquire unique pieces or add to their collections. Therefore, choosing option D, all of the above, is the best choice.

Question 5

​In oral auctions,the price that the winner pays depends on
A)​The winner's willingness to pay
B)The highest willingness to pay among the losers
C)The lowest willingness to pay among the losers
D)​None of the above

Accepted Answer

In oral auctions, the winner pays the highest bid, which is determined by the highest willingness to pay among the losers, as they bid until no one is willing to bid higher.

Question 6

​If the bidders at an oral auction have true values of $78,$72,$66,and $65,the item will sell for
A)​$78
B)just under $78
C)$72
D)​just over $72

Accepted Answer

The answer of ​If the bidders at an oral auction...

Question 7

​An oral auction
A)​is also called an English auction
B)is where bidders submit increasing bids until all but one remains
C)is where the sole remaining bidder wins and pays his winning bid
D)​all of the above

Accepted Answer

An oral auction is also called an English auction, in which bidders submit increasing bids until all but one remains, and the sole remaining bidder wins and pays their winning bid.

Question 8

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna instead holds an oral auction between the two bidders and one bidder of each type shows up,she earn ___ from the auction.
A)​Just above $100
B)$100
C)Just above $70
D)​$70

Accepted Answer

If Anna sells the teacup to one of the bidders randomly, she can expect an average revenue of $(0.5)(100)+(0.5)(70)=$85. However, if she holds an oral auction, the bidder with the high-value of $100 will bid $100 and the bidder with the low-value of $70 will bid up to the point where the expected value of the teacup is equal to their bid (i.e. $85). Therefore, Anna can expect to earn just above $70 from the oral auction.

Question 9

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna can only set one price,what price should she set?
A)​$100
B)$70
C)Any price higher than $100
D)​Any price lower than $70

Accepted Answer

Setting the price at $100 maximizes revenue because there's a chance both bidders value the teacup at $100, ensuring a sale at the highest possible price without excluding any high-value bidders.

Question 10

​The optimal bidding strategy for an oral auction is
A)​To shade your bid below your true value and drop out well before it is reached
B)To shade your bid below your true value and drop out just when the shaded amount is reached
C)To drop out when the bidding exceeds your true value
D)​To size up your competition to determine how much to shade your bid

Accepted Answer

C) Dropping out when the bidding exceeds your true value ensures that you do not pay more than the item is worth to you, which is the optimal strategy in an auction to avoid the winner's curse.

Question 11

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What is the expected revenue from setting the price at $70?
A)​$60
B)$70
C)$80
D)​$100

Accepted Answer

At a price of $70, both high-value and low-value bidders are willing to purchase the teacup. Since there are two bidders and each has a 50% chance of being either high-value or low-value, the expected revenue is simply the price set, $70, because it is guaranteed to sell at that price to either type of bidder.

Question 12

​If the bidders at an oral auction have true values of $8,$7,$6,and $5,the item will sell for
A)​$8
B)$7
C)just over $7
D)​just under $7

Accepted Answer

The highest bidder will win, but they will only pay the price of the second-highest bidder. In this case, the highest bidder has a true value of $8 and the second-highest bidder has a true value of $7. Therefore, the item will sell for just over $7, which is the price of the second-highest bidder.

Question 13

​Economists love auctions because
A)​They maximize consumer surplus
B)They minimize producer surplus
C)They set the price for the item,avoiding costly negotiations
D)​They open the door to costly negotiations,with room for manipulation

Accepted Answer

Auctions set a price for the item being sold, avoiding costly negotiations and uncertainty. This is attractive to economists who believe in the efficiency of markets and price determination. Auctions also create competition among bidders, which can lead to a higher price and ultimately more revenue for the seller. Therefore, economists view auctions favorably.

Question 14

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What is the expected revenue from setting the price at $100?
A)​$70
B)$75
C)$80
D)​$100

Accepted Answer

The answer of Anna's Antiques expects to get two bidders...

Question 15

​More bidders would tend to increase the selling price at an oral auction if
A)​bidders bid less aggressively
B)the true value of the winner is higher
C)the true values of the losers is higher
D)​Both A&C

Accepted Answer

More bidders increase competition, and if the true values of the losers are higher, they will bid more, driving up the selling price.

Question 16

​An oral auction
A)​is also called a Vickrey auction
B)is where bidders submit increasing bids until all but one remains
C)is where the highest bidder wins and pays the amount of the next highest bid
D)​all of the above

Accepted Answer

An oral auction is where bidders submit increasing bids until all but one remains. It is not the same as a Vickrey auction, which involves sealed bids, and the highest bidder does not pay the amount of the next highest bid.

Question 17

​An oral auction
A)​is also called a Vickrey auction
B)is conducted by bidders submitting a single sealed bid
C)is where the sole remaining bidder wins and pays his winning bid
D)​all of the above

Accepted Answer

An oral auction is conducted with bidders bidding out loud, and the highest bidder wins and pays their winning bid. It is not referred to as a Vickrey auction, which is a type of sealed-bid auction, and it is not conducted with sealed bids as in option B. Therefore, option C is the correct answer.

Question 18

​Auctions are valuable for selling items such as
A)​Pens
B)Artwork
C)Standard automobiles
D)​All of the above

Accepted Answer

Auctions can be used to sell a variety of items including pens, artwork, and standard automobiles. In fact, auctions can be a great way to sell any item that has value and is in demand, as they allow for competitive bidding and can result in higher sale prices than other methods of selling.

Question 19

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What combinations of customers can Anna expect?
A)​High value,high value
B)High value,low value
C)Low value,low value
D)​All of the above

Accepted Answer

Given that each bidder can have either a high value or a low value for the teacup with equal probability, Anna can expect all combinations of customer values: two high-value customers, one high-value and one low-value customer, and two low-value customers.

Question 20

​Katy is holding an English auction.If she estimates the values of her bidders to be $2,$4,$10,$15 and $25,she should expect to be able to make ____ off the auction
A)​Just above $10
B)Just below $10
C)Just above $15
D)​Just below $15

Accepted Answer

In an English auction, the item is sold to the highest bidder. Since the highest estimated value among bidders is $25, Katy should expect to make just above the second-highest bid to win the auction, which is $15.

Quiz 16: Auctions

​Economists love auctions because

​An English auction is

The more bidders there are at an oral auction,​

​Auctions are valuable for selling items such as

​In oral auctions,the price that the winner pays depends on

​If the bidders at an oral auction have true values of $78,$72,$66,and $65,the item will sell for

​An oral auction

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna can only set one price,what price should she set?

​The optimal bidding strategy for an oral auction is

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What is the expected revenue from setting the price at $70?

​If the bidders at an oral auction have true values of $8,$7,$6,and $5,the item will sell for

​Economists love auctions because

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What is the expected revenue from setting the price at $100?

​More bidders would tend to increase the selling price at an oral auction if

​An oral auction

​An oral auction

​Auctions are valuable for selling items such as

Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.What combinations of customers can Anna expect?

​Katy is holding an English auction.If she estimates the values of her bidders to be $2,$4,$10,$15 and $25,she should expect to be able to make ____ off the auction

Economists love auctions because

An English auction is

The more bidders there are at an oral auction,

Auctions are valuable for selling items such as

In oral auctions,the price that the winner pays depends on

If the bidders at an oral auction have true values of $78,$72,$66,and $65,the item will sell for

An oral auction

The optimal bidding strategy for an oral auction is

If the bidders at an oral auction have true values of $8,$7,$6,and $5,the item will sell for

Economists love auctions because

More bidders would tend to increase the selling price at an oral auction if

An oral auction

An oral auction

Auctions are valuable for selling items such as

Katy is holding an English auction.If she estimates the values of her bidders to be $2,$4,$10,$15 and $25,she should expect to be able to make ____ off the auction