An auction in which the low bid gets the business or wins is known as a ________ auction.

Chapter 17 Auctions and Bargaining

17 Auctions

1. In general, it is common for goods with ________ to be auctioned. A) low prices B) relatively few buyers C) a large number of buyers D) a large number of sellers Answer: B Difficulty: Easy Topic: Auctions

2. In an auction, ________. A) buyers set the price of a good B) the seller sets the price of a good C) the government sets the price of a good below its market price D) the government sets the price of a good above its market price Answer: A Difficulty: Easy Topic: Auctions

3. Auctions can be differentiated on the basis of ________. A) the number of buyers B) the number of sellers C) the way in which people place their bids D) the degree of competition among buyers Answer: C Difficulty: Easy Topic: Types of Auctions

4. An open outcry auction is an auction where ________. A) bids are placed privately B) public goods are sold C) bidders know about each other's bids D) free goods are distributed among the general public Answer: C Difficulty: Easy Topic: Types of Auctions

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1. A sealed-bid auction is one in which ________. A) bidders do not know each other's bid B) bidders know each other's bid C) bidders place their bids one after another D) bidders cannot determine the price of the good Answer: A Difficulty: Easy Topic: Types of Auctions

2. An English auction is usually a(n) ________ auction. A) sealed-bid first-price B) sealed-bid second price C) penny D) open outcry Answer: D Difficulty: Easy Topic: Open Outcry English Auctions

3. An English auction consists of ________. A) an auctioneer and several bidders B) one auctioneer and one bidder C) few auctioneers and several bidders D) several auctioneers and one bidder Answer: A Difficulty: Easy Topic: Open Outcry English Auctions

4. In an open outcry English auction, ________. A) the bidders begin the bidding process with a high starting bid B) the auctioneer begins the bidding process with a high starting bid C) the auctioneer begins the bidding process with a low starting bid D) the bidders decide the starting bid Answer: C Difficulty: Easy Topic: Open Outcry English Auctions

5. An English auction ends when ________. A) no bidder is willing to bid any higher B) a bidder accepts the price announced by the auctioneer C) a bidder bids above the market price of the good D) a bidder bids below the starting bid Answer: A Difficulty: Easy Topic: Open Outcry English Auctions

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AACSB: Application of Knowledge Topic: Open Outcry English Auctions

1. Gary has won a laptop in an online auction. This implies that ________. A) Gary's willingness to pay for the laptop was higher than its market price B) Gary's willingness to pay for the laptop was lower than its market price C) Gary's willingness to pay for the laptop was higher than that of the other bidders D) Gary's willingness to pay for the laptop was lower than that of at least one bidder Answer: C Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

Four friends—Tom, Bill, Jeff and Roger—are participating in an English auction. Tom values the good being auctioned at $500, Bill values it at $210, Jeff values it at $350, and Roger values it at $625.

1. Refer to the scenario above. If they are the only bidders in the auction and each of them uses his optimal strategy, who will win? A) Tom B) Bill C) Jeff D) Roger Answer: D Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry English Auctions

2. Refer to the scenario above. If they are the only bidders in the auction, Bill will continue to bid as long as bidding is below ________. A) $ B) $ C) $ D) $ Answer: B Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry English Auctions

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1. Refer to the scenario above. If they are the only bidders in the auction, Tom will no longer bid when bidding reaches ________. A) $ B) $ C) $ D) $ Answer: D Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry English Auctions

2. Refer to the scenario above. Suppose there are several other bidders in the auction. Roger will win the auction only if ________. A) all the other bidders bid above $ B) all the other bidders bid below $ C) all the other bidders are risk lovers D) all the bidders are risk averse Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

3. Refer to the scenario above. If they are the only bidders in the auction, Jeff will win the auction if ________. A) Tom and Roger bid up to their value for the good while Bill and Jeff bid below their value of the good B) Tom and Jeff bid up to their value for the good while Roger and Bill bid below their value for the good C) Bill and Jeff bid up to their value for the good while Tom and Roger stop bidding at $ and $200 respectively D) each of them bids up to his value for the good Answer: C Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

4. Refer to the scenario above. If they are the only bidders in the auction and each bidder uses his optimal strategy, the maximum price the winner is likely to pay is ________. A) $ B) $ C) $ D) $ Answer: C Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

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An ancient painting is being auctioned off in an open-outcry English auction. The following table shows the maximum willingness to pay of each bidder.

Bidders Values (in dollars) Rachel 500 James 450 David 400 Joe 350 Emily 300 Bob 250

1. Refer to the scenario above. Which of the following statements will hold true if the starting bid is $300? A) Everyone except Bob will take part in the auction. B) Everyone will take part in the auction. C) Only Bob will take part in the auction. D) Everyone except Joe will take part in the auction. Answer: A Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry English Auctions

2. Refer to the scenario above. The optimal strategy for Rachel is to bid a price: A) above her willingness to pay. B) equal to half the amount she is willing to pay. C) equal to 5/6 times her willingness to pay. D) up to her willingness to pay. Answer: D Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

3. Refer to the scenario above. If the starting bid is $250, ________ will win the auction and will have to pay ________ for the painting. A) Bob; $ B) James; $ C) Rachel; $ D) Joe; $ Answer: C Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry English Auctions

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1. Refer to the scenario above. The winner of this auction will earn a consumer surplus of ________. A) $ B) $ C) $ D) $ Answer: B Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

2. Refer to the scenario above. Which of the following is true if David's maximum willingness to pay for the good falls to $380? A) James will win the auction. B) Rachel will not take part in the auction. C) The auctioneer will earn the same average revenue. D) David will win the auction. Answer: C Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry English Auctions

3. Many online auctions end when a certain amount of time has gone by without a bid. This causes bidders to place several last-minute bids. This practice is known as ________. A) sniping B) jump bidding C) nonforcing D) signing off Answer: A Difficulty: Easy Topic: Letting the Data Speak: To Snipe or Not to Snipe

4. A Dutch auction is a(n) ________. A) sealed-bid first-price auction B) sealed-bid second-price auction C) penny auction D) open outcry auction Answer: D Difficulty: Easy Topic: Open Outcry Dutch Auctions

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1. In a Dutch auction, ________ with each bid. A) the price of the good increases B) the price of the good decreases C) the quantity of the good being offered increases D) the quantity of the good being offered decreases Answer: B Difficulty: Easy Topic: Open Outcry Dutch Auctions

2. In a Dutch auction, the winner pays a price equal to ________. A) the market price of the good B) the value of the lowest bid C) his value for the good D) his bid Answer: D Difficulty: Easy Topic: Open Outcry Dutch Auctions

3. One assumption that economists often make about people is that they are ________. A) risk-neutral B) risk-averse C) risk-seeking D) rent-seekers Answer: A Difficulty: Easy Topic: Open Outcry Dutch Auctions

4. A ________ person is indifferent to a bet that has zero expected value. A) risk-neutral B) risk-loving C) risk-averse D) rent-seeking Answer: A Difficulty: Medium Topic: Open Outcry Dutch Auctions

5. In a Dutch auction, the higher the bid, the ________ the surplus and the ________ chance of winning. A) higher; lower B) lower; higher C) higher; higher D) lower; lower Answer: B Difficulty: Easy Topic: Open Outcry Dutch Auctions

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Alice is participating in an open outcry Dutch auction for a painting. There are 5 other bidders and Alice values the painting at $30,000.

1. Refer to the scenario above. What is Alice's optimal bidding price? A) $25, B) $30, C) $24, D) $36, Answer: A Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

2. Refer to the scenario above. Alice will earn an expected surplus of ________ if she uses her optimal strategy to win the game. A) $5, B) $6, C) $30, D) $16, Answer: A Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

3. Refer to the scenario above. Which of the following will be true if Alice stops the auction at $30,000? A) She will earn zero consumer surplus. B) She will earn a consumer surplus of $5,000. C) She will earn a consumer surplus of $30,000. D) She will earn a consumer surplus of $16,000. Answer: A Difficulty: Easy AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

4. Refer to the scenario above. If Alice wins the auction, the seller earns an average revenue of ________. A) $30, B) $25, C) $24, D) $36, Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

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1. Refer to the scenario above. The seller will earn a revenue of ________. A) $45, B) $40, C) $5, D) $4, Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

2. Refer to the scenario above. If the number of participants in the auction increases to 20, Rebecca should place a bid of ________. A) $45, B) $42, C) $4, D) $40, Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

3. Refer to the scenario above. If Rebecca wins the auction, she will earn a surplus of ________. A) $1, B) $4, C) $5, D) $45, Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

4. The larger the number of bidders in an open outcry Dutch auction, ________. A) the lower is the maximum willingness to pay of each bidder B) the smaller is the consumer surplus earned by the winner C) the larger is the quantity offered by the auctioneer for auction D) the lower is the value of the starting bid Answer: B Difficulty: Medium Topic: Open Outcry Dutch Auctions

5. Which of the following is a similarity between an English auction and a Dutch auction? A) The second-highest bidder wins the good in both the auctions. B) The bidder who values the good the most wins it in both the auctions. C) The bidders submit their bids privately at the same time in case of both the auctions. D) In both auctions, the bidders submit their bids privately at different times during the bidding process. Answer: B Difficulty: Easy Topic: Open Outcry Dutch Auctions

6. Which of the following is a difference between an English auction and a Dutch auction? A) Bids are placed publicly in an English auction while bids are placed privately in a Dutch auction. B) The bidder who values the good the most wins in an English auction while the bidder who values the good the least wins in a Dutch auction.

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C) An English auction is an ascending price auction while a Dutch auction is a descending price auction. D) An English auction is a descending price auction while a Dutch auction is an ascending price auction. Answer: C Difficulty: Medium Topic: Open Outcry Dutch Auctions

1. In a first-price sealed-bid auction, ________. A) bidders submit their bids privately B) bidders place their bids one after another publicly C) bidders know each other's bids D) bidders bid above their willingness to pay Answer: A Difficulty: Easy Topic: Sealed Bid: First-Price Auction

2. Which of the following is true of a first-price sealed-bid auction? A) Bidders directly compete with each other. B) Bidders place their bids simultaneously. C) Bidders know each other's bids. D) Bidders always bid below their willingness to pay. Answer: B Difficulty: Easy Topic: Sealed Bid: First-Price Auction

3. In a first-price sealed-bid auction, the ________ bidder wins the good being auctioned. A) lowest B) second-highest C) highest D) first Answer: C Difficulty: Easy Topic: Sealed Bid: First-Price Auction

4. The winner in a first-price sealed-bid auction pays an amount equal to ________. A) his bid B) the second-highest bid C) half of his bid D) the lowest bid Answer: A Difficulty: Easy Topic: Sealed Bid: First-Price Auction

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1. Refer to the scenario above. Maria should submit a bid of ________. A) $ B) $ C) $ D) $ Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

2. Refer to the scenario above. The winner of this auction will earn a surplus of ________ if he follows his dominant strategy. A) $ B) $ C) $ D) $ Answer: A Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

3. Refer to the scenario above. The seller will earn a revenue of ________. A) $ B) $ C) $ D) $ Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

Consider the following situation. Molly is one among the 61 bidders who took part in a first- price sealed-bid auction for vintage furniture. Molly places a value of $850, the highest value, for a vintage dressing table that came up for auction. Joseph has the second-highest willingness-to-pay of $750.

1. Refer to the scenario above. Which of the following is an optimal bid for Molly? A) $ B) $ C) $825. D) $ Answer: A Difficulty: Hard AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

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1. Refer to the scenario above. If Molly wins the auction by using her optimal bidding strategy, she will earn a surplus of ________. A) $ B) $ C) $ D) $ Answer: C Difficulty: Hard AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

2. Refer to the scenario above. Which among the following is a possible outcome if the number of bidders decreases to 45? A) There will be no change in the outcome of the auction. B) The optimal bid for Molly will now be $831. C) The optimal bid for Molly will now be $745. D) The optimal bid for Molly will now be $845. Answer: B Difficulty: Hard AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

3. Refer to the scenario above. If the number of bidders increases to 65, Molly's optimal bid for the product would be ________, and her consumer surplus would be ________. A) $836; $13. B) $831; $18. C) $765; $ D) $750; $28. Answer: A Difficulty: Hard AACSB: Application of Knowledge Topic: Sealed Bid: First-Price Auction

4. The higher the bid in a first-price sealed-bid auction, the ________ the chances of winning and the ________ the surplus earned. A) higher; higher B) higher; lower C) lower; higher D) lower; lower Answer: B Difficulty: Easy Topic: Sealed Bid: First-Price Auction

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1. A cruiser bike is being auctioned in a first-price sealed-bid auction. You always wanted to own a cruiser bike, and therefore decide to participate in the auction. You value the bike at $4,000. On the day of the auction, you saw that there are 70 other bidders. Your optimal bid in this case is ________. A) $3, B) $3, C) $4, D) $3, Answer: D Difficulty: Hard AACSB: Application of Knowledge Topic: Open Outcry Dutch Auctions

2. In a second-price sealed-bid auction, ________. A) bidders submit their bids privately B) bidders place their bids one after another C) bidders know each other's bid D) bidders bid above their willingness to pay Answer: A Difficulty: Easy Topic: Sealed Bid: Second-Price Auction

3. Which of the following is true of a second-price sealed-bid auction? A) Bidders directly compete with each other. B) Bidders submit their bids simultaneously. C) Bidders know each other's bid. D) Bidders always bid above their willingness to pay. Answer: B Difficulty: Easy Topic: Sealed Bid: Second-Price Auction

4. In a second-price sealed-bid auction, the ________ bidder wins the item. A) second-highest B) highest C) first D) lowest Answer: B Difficulty: Easy Topic: Sealed Bid: Second-Price Auction

5. The winner of a second-price sealed-bid auction pays an amount equal to ________. A) half of his bid B) the lowest bid C) the second-highest bid D) his valuation of the good Answer: C Difficulty: Easy Topic: Sealed Bid: Second-Price Auction

Tom, Pat, Arthur and Julie are participating in a second-price sealed-bid auction for a good. Tom values the good at $150, Pat values it at $180, Arthur values it at $250, and Julie values it at $200.

1. Refer to the scenario above. If each bidder uses his/her dominant strategy, who will get the good being auctioned? A) Tom

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B) Pat C) Arthur D) Julie Answer: C Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: Second-Price Auction

1. Refer to the scenario above. Tom should submit a bid of ________. A) $ B) $ C) $112. D) $ Answer: A Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: Second-Price Auction

2. Refer to the scenario above. Pat should submit a bid of ________. A) $ B) $ C) $ D) $ Answer: B Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: Second-Price Auction

3. Refer to the scenario above. Arthur should place a bid of ________. A) $187. B) $ C) $ D) $ Answer: D Difficulty: Medium AACSB: Application of Knowledge Topic: Sealed Bid: Second-Price Auction

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