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Microeconomics 11th Edition David Colander - Solutions
Two people are arrested and charged with the same crime.Each is given the opportunity to accuse the other of the crime. The payoff matrix shows how much time each will serve depending on who rats out whom.a. What is the dominant strategy for each, if any?b. What is the Nash equilibrium, if any? B
For each of the following, state whether Player A and Player B have a dominant strategy and, if so, what each player’s dominant strategy is. a. Player A X Y A: $5 A: $2 X Player B A: $10 B: $5 A: $8 Y B: $2 B: $10 B: $8
Would the results of the prisoner’s dilemma game be different if it were a sequential rather than a simultaneous game?
State whether each of the following situations is a simultaneous or sequential game. Explain your answer.a. A congressional vote by roll call.b. The ultimatum game.c. The Civil War.d. The segregation game (requires reading the box “The Segregation Game and Agent-Based Modeling”).
Can a player have a rollback strategy in a simultaneous move game?
True or false? If a game has a Nash equilibrium, that equilibrium will be the equilibrium that we expect to observe in the real world.
Why might the multiple-play ultimatum game have a different result than the single-play ultimatum game?
Why do sellers generally prefer a Vickrey auction to a regular sealed bid if sellers don’t receive the highest bid in the Vickrey auction?
Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $250 to you. Say you expect the nexthighest bidder to bid $100.a. In a standard “highest-bid” auction, what bid would a rational person make?b. In a Vickrey auction,
When consumers were given the opportunity to select a package of ground beef labeled “75% lean” or a package of ground beef labeled “25% fat,” most consumers chose“75% lean.” Why? What concept from the chapter does this illustrate?
Why does it take just a few people to act rationally for the standard model to hold?
Do you believe people with religious training will arrive at different outcomes than others in a strategic game?Why? Which interaction is preferable? (Religious)
Austrian economist Ludwig von Mises defined economics as “the science of human action.” Does game theory or standard supply/demand analysis better fit with that definition? Why? (Austrian)
Do you believe that women will arrive at different outcomes than men when playing a strategic game? Why?Which is preferable? (Feminist)
How does game theory demonstrate the importance of institutions?(Institutionalist)
In the opening to this chapter, the author describes a scene in the movie A Beautiful Mind. What is disturbing about that scene? Is John Nash representative of economic sensibility? (Feminist)
How do the findings of behavioral economics undermine the assumptions of the standard model as to the nature of human beings? (Radical)
How is the fact that employers look to see that applicants took difficult courses in college, even though the subject matter has no bearing on the work they will likely do, an example of screening?
How is investing in the stock market similar to playing the two-thirds game?
In 1950, economists Merrill Flood and Melvin Dresher devised an experiment to challenge the Nash equilibrium.They presented the following payoff matrix to two economists and asked them to play the following game 100 times in succession:a. What is the Nash equilibrium of this payoff matrix?b. Is the
In 1970 economist Martin Shubik proposed a game that involved auctioning off a one-dollar bill with the following rules: 1. The highest bidder wins the dollar bill and pays his bid. 2. The second-highest bidder also has to pay the amount of his last bid—and gets nothing in return.3. Each new
Suppose the two-thirds game described in the chapter were changed to the “average” game, so that the class had to guess a number between 0 and 100, and the person who wins is the person who guesses closest to the average number.a. What would the Nash equilibrium likely be?b. If your class
Say that 90 percent of the people in a market demonstrate the endowment effect and 10 percent are “rational.” Say that, initially, all people have equal wealth.a. How would you expect the wealth distribution to change over time?b. Would you expect the traditional model’s predictions, which
In a Vickrey auction how would a person’s bid differ if she knew that the seller had someone at the auction submitting a bid for the seller?
True or false? Game theory is inconsistent with supply/demand analysis.Explain your answer.
In the payoff matrix in Figure 20-1, what is B’s best strategy if A confesses? FIGURE 20-1 Prisoner's Dilemma This payoff matrix illustrates the prisoner's dilemma. If the prisoners could agree not to confess, each would get a light sentence. But each prisoner is offered the chance to go free if
In the payoff matrix in Figure 20-1, what is B’s best strategy if A does not confess? FIGURE 20-1 Prisoner's Dilemma This payoff matrix illustrates the prisoner's dilemma. If the prisoners could agree not to confess, each would get a light sentence. But each prisoner is offered the chance to go
In the payoff matrix in Figure 20-1, if Prisoners A and B are in love and care for each other as they care for themselves, what is the expected outcome of the prisoner’s dilemma game? FIGURE 20-1 Prisoner's Dilemma This payoff matrix illustrates the prisoner's dilemma. If the prisoners could
In formal game theory, should cheap talk influence the results?
In a single-play ultimatum game, what is the optimal strategy for the first player?
What is the Nash equilibrium in the two-thirds game?
How does a Vickrey auction differ from a standard sealed-bid auction?
If a firm wants to increase the number of employees who participate in a savings plan, should the enrollment form ask whether the employee wants an automatic withdrawal from a paycheck to retirement or an automatic deposit to retirement from a paycheck?
If 90 percent of people operate as behavioral economics suggests, does that mean that the standard economic model is no longer applicable?
Why do economists rely more on empirical evidence today than they did 100 years ago?
What does it mean to “let the data speak”?
What is a regression?
True or false? Models provide both theorems and precepts.Explain your answer.
State whether each of the policy recommendations is an example of a modern economist’s precepts or a traditional economist’s precepts.a. More goods are preferred to fewer goods.b. Banks ought to be required to get approval for new financial instruments.c. Firms can decide what information to
How might modeling itself frame an economist’s analysis, making the economist unable to see basic truths about the way in which society subjugates women? (Feminist)
Was Mother Teresa rational? (Religious)
It is sometimes said that modern economists pose little questions that can be answered while sociologists pose large questions that cannot be answered. How might that description be related to the economist’s modeling approach?(Radical)
The book talks as if modern economists have made a large break from traditional assumptions; many heterodox economists see the two as simply minor modifications of the same approach. In what way is that true? (Austrian)
If modern economics focuses on empirical models, does that mean that those aspects of life that cannot be quantified are shortchanged? (Institutionalist)
Is the supply/demand model a path-dependent model?Why or why not?
What is the glue that holds modern economics together?
Are modern economists more likely to use inductive models than were earlier economists?
If an economist argues that people tend to be purposeful and follow their enlightened self-interest, would you most likely characterize that economist as a behavioral or a traditional economist?
Can adding a constraint on people make them better off?
Which are better—models based on traditional building blocks or models based on behavioral building blocks?
Does the author’s tendency to wear Velcro shoes demonstrate that he is beyond social pressures?
Why are economists very hesitant to base knowledge on heuristic models?
True or false? Debates in modern economics will be resolved by letting the data speak.
Is the supply and demand model a path-dependent model?
If a model tells you that price controls will reduce people’s welfare, does it follow that economists will advise governments not to impose price controls?
What is a coordination mechanism? Give an example.
True or false? For a market to have a coordination mechanism, money must be exchanged. Explain.
True or false? Only money prices affect incentives;shadow prices do not. Explain.
What is the incentive compatibility problem? Give an example.
What is the primary task of a mechanism design economist?
How did mechanism design lead to behavioral economics?
Can a model that includes just money price miss relevant prices? Why or why not?
How is choice architecture related to behavioral economics and mechanism design?
Behavioral economics is a new field in economics. Are nudges new too?
What is a nudge policy? Give an example.
How can a nudge be defined as libertarian?
In what way is nudge policy paternalistic?
Two people are given the choice to participate in a retirement program in which the firm matches contributions.Person A is given a form on which she must check a box to opt into the retirement program. Person B is given a form on which she must check a box to opt out of the retirement program.
What are three types of choices in which nudges are useful?
Why is a nudge useful for choices where benefits and costs are separated by time?
Why, in the traditional model, is a nudge unnecessary but potentially helpful in the behavioral model?
Classify the following nudges as either a “potentially advantageous default nudge,” an “information or encouragement nudge,” or “not a nudge.”a. A firm redesigns its health enrollment form so that employees must explicitly choose to forgo health insurance.b. Your local city sends you an
Government has provided a way for people to file their tax returns on the Internet to make filing easier and raise compliance. Is this an example of a libertarian paternalistic policy? Explain your answer.
What distinguishes a nudge from a push?
Why would push instead of nudge policies be required?
Identify the following as either a nudge, a push, or neither.a. The cover of your state tax forms reports that 90 percent of residents pay taxes on time.b. If your friends gain weight, you are likely to gain weight too.c. Amazon is required by government to set the default mail option as the
How is conspicuous consumption an example of the importance of relative materialism to one’s happiness?
How might conspicuous consumption lower total happiness?
What are four reasons to be cautious about nudges?
Why aren’t there many libertarian nudge policies?
Assume that government proposes that all employees must be presented with the choice of opting out of a retirement saving program. What assumptions are necessary for this to be a true nudge? Are they reasonable assumptions?
Behavioral economics seems to suggest that the“long-term self” rather than the “short-term self” is rational.How do we know that? (Austrian)
There is an implicit view in the chapter that if a policy meets the libertarian paternalistic goal, it is a good policy.Is that necessarily the case? (Radical)
How does behavioral economics undermine the standard supply/demand model? (Institutionalist)
Behavioral economics acknowledges that cultural norms impact people’s behavior, something that feminist economists have long included in their analysis. What risks does nudge policy pose for using cultural norms to affect behavior of those in society who have comparatively less power? (Feminist)
What mechanism might be developed to determine whether it is appropriate for government to give a nudge?
Why were more batters being hit in the American League than in the National League starting in 1973? (Be sure your answer uses shadow prices.)
To offset the effect of the designated hitter system, what might the American League do to reduce the number of beanballs thrown?
In which of the following cases might a nudge be helpful?Explain why or why not.a. Deciding what mortgage is affordable.b. Deciding whether to exercise or not on a particular day.c. Deciding whether to fill your gas tank.d. Deciding whom to marry.
Do we as a society focus too much on consumption, and, if so, how would one change that focus?
Describe five nudges that firms currently use to get you to do what they want you to do.
How does economic engineering differ from economic science?
How does a shadow price differ from a normal price?
Does grading in courses involve an incentive compatibility problem?
Why did economists’ work in mechanism design lead to a greater interest in behavioral economics?
True or false? A traditional economist believes people are always rational.
If an economist believes that choice architecture is important, is he or she more likely to be a traditional economist or a behavioral economist?
A policy designed to structure choices so that people make a certain choice is called what type of policy?
If the government tells a company how to structure the bills it issues, is the policy a nudge policy?
Do more conspicuous consumption goods make society better off?
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