BU.920.603 Microeconomics & Market Design Final Assessment (Qns & Ans) 2026

BU.920.603 Microeconomics & Market Design Final Assessment (Qns & Ans) 2026

1. What is the primary purpose of a market mechanism?
 A) To eliminate competition
 B) To equitably distribute resources
 C) To determine prices through supply and demand
 D) To ensure maximum production
 Correct ANS: C) To determine prices through supply and
demand
 Rationale: Market mechanisms rely on the balance of supply
and demand to establish the prices of goods and services.
2. In game theory, what is a Nash Equilibrium?
 A) A strategy that leads to the highest payoff for one player
 B) A situation where no player can benefit by changing their
strategy unilaterally
 C) A mutually beneficial agreement between players
 D) A point where total economic surplus is maximized
 Correct ANS: B) A situation where no player can benefit by
changing their strategy unilaterally 

Rationale: A Nash Equilibrium occurs when each player's
strategy is optimal given the strategy of the other players.
3. Which of the following is NOT a characteristic of perfect
competition?
 A) Homogeneous products
 B) Free entry and exit
 C) Significant market power
 D) Full information
 Correct ANS: C) Significant market power
 Rationale: Perfect competition implies that no individual firm
has market power, as they are price takers.
4. What role do transaction costs play in market design?
 A) They decrease efficiency in markets
 B) They ensure that only large firms can operate
 C) They facilitate price stability
 D) They are irrelevant to market functioning
 Correct ANS: A) They decrease efficiency in markets 

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