Question 1

An auction in which bidders submit sealed bids, and the winner is the highest bidder, who pays a price equal to his or her bid, is called a first-price sealed-bid auction.

Accepted Answer

This is the definition of a first-price sealed-bid auction.

Question 2

Collusion among firms bidding in an auction is called auction distortion.

Accepted Answer

Collusion among firms bidding in an auction is typically referred to as bid rigging or auction collusion, not auction distortion.

Question 3

The Rth order statistic of a sample is the Rth smallest value of the sample.

Accepted Answer

This is correct definition of Rth order statistic.

Question 4

A Dutch auction is an auction in which the auctioneer starts the bidding at a certain level and people raise that bid until no one wishes to increase her or his bid any further. The last person to bid wins the good at a price equal to that bid.

Accepted Answer

In a Dutch auction, the auctioneer starts with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined minimum price is reached.

Question 5

A sealed-bid auction is an auction in which bidders enter their bids privately and the loser is that bidder whose bid is highest.

Accepted Answer

In a sealed-bid auction, the winner is the bidder with the highest bid, not the loser.

Question 6

To get the experimental volunteers to act like real buyers and sellers, Smith and Plott had to provide

Accepted Answer

Monetary incentives (such as paying the volunteers) are most likely to motivate the volunteers to act like real buyers and sellers. Pleading and begging (choice B) would not be a professional or effective approach, and voluminous written instructions (choice C) may not be enough to create a realistic environment.

Question 7

The Smith experiments demonstrated that the market institution that best approximated efficiency was the

Accepted Answer

The Smith experiments demonstrated that the double oral auction was the market institution that best approximated efficiency. The double oral auction allows both buyers and sellers to be active and engage in open bidding, leading to a more competitive and informed market.

Question 8

Because the researchers in the Smith and Plott experiments gave subjects monetary incentives, we can describe the resulting demand and supply curves as

Accepted Answer

The use of monetary incentives induced the demand and supply curves. This means that the researchers created the demand and supply curves by offering monetary incentives to participants, rather than observing naturally occurring market behavior. While induced curves can still provide valuable information, they may not accurately reflect real-world market dynamics.

Question 9

Under the structure of the Smith and Plott experiment, the payoff to a buyer is the ___________ surplus on the units she or he purchases.

Accepted Answer

The Smith and Plott experiment focuses on exchange between buyers and sellers in a market setting, and the payoff to a buyer is the consumer surplus they receive from purchasing units at a lower price than their willingness to pay. Therefore, the correct choice is (C) consumer.

Question 10

A private value auction is an auction in which each person has a particular and possibly different value for the good being auctioned.

Accepted Answer

In a private value auction, each person has their own individual value for the good being auctioned, which makes their bids based on their own personal preferences and valuations. This is in contrast to a common value auction where bidders have the same information about the value of the good being auctioned.

Question 11

A double oral auction is an auction is an auction in which ______________________ can make bids or asks as the auction progresses.

Accepted Answer

In a double oral auction, both buyers and sellers participate by making bids or asks as the auction progresses. This is different from a typical single oral auction where only buyers make bids.

Question 12

An auction of the type used in country or art auctions is called a(n)

Accepted Answer

An English auction is the type of auction used in country or art auctions, where the auctioneer starts with a low bid and then gradually increases the bid until a bidder agrees to buy the item. The bidder who offers the highest bid wins the auction.

Question 13

A common value auction is an auction in which one objectively true value for a good exists, but information about that value is distributed across the population.

Accepted Answer

In a common value auction, the value of the good is objectively true, but bidders may have different information about that value, which affects their bidding strategies.

Question 14

Imagine a double oral auction for a gallon of jam. The buyer bids $4. The seller asks $7. What is the most likely next step?

Accepted Answer

The most likely next step in a double oral auction when the buyer bids less than the seller's asking price is for the buyer to bid again with an amount between their initial bid and the seller's asking price. This is known as the bidding process and is the standard way to reach a price both parties are willing to agree on. Option A is not appropriate since a contract can only be made once there is a mutual agreement on the price. Option C is unlikely since the seller would not drop their asking price below what the buyer originally bid.

Question 15

The only difference among the three Smith and Plott experiments is the

Accepted Answer

The only difference among the three experiments is the market institution used. The first experiment used a double auction, the second used a posted offer market, and the third used a sealed bid market. Both the induced demand curves and induced supply curves were the same in all three experiments.

Question 16

The Smith and Plott experiments used

Accepted Answer

The Smith and Plott experiments used both a double oral auction and one-sided oral auctions.

Question 17

An outcome of a common value auction in which the winning bidder bids more than the true expected value of the good he or she wins is called the winner's curse.

Accepted Answer

The winner's curse is indeed an outcome of a common value auction in which the winning bidder overestimates the true value of the good and ends up paying more than the good is actually worth.

Question 18

One-sided oral auctions are market institutions in which buyers can accept or reject offers from sellers but cannot make counteroffers.

Accepted Answer

In one-sided oral auctions, buyers do not have the opportunity to make counteroffers and can only accept or reject the sellers' offers.

Question 19

An auction in which everyone submits a sealed bid and the winner is the highest bidder, but the winner pays a price equal to the second-highest bidder's price is known as "lucky person" auction.

Accepted Answer

This type of auction is actually known as a "second-price sealed bid auction" or a "Vickrey auction".

Question 20

Under the structure of the Smith and Plott experiment, the payoff to a seller is the ___________ surplus on the units sold.

Accepted Answer

The payoff to a seller in the Smith and Plott experiment is the producer surplus on the units sold. Therefore, the best choice is C, as this is the only option that matches the correct type of surplus. A refers to the surplus received by consumers, while B refers to the price and quantity where supply and demand intersect.

Quiz 16: Market Institutions and Auctions