Econ 101 Unit 2
Which of the following statements is correct?
A social interaction is a strategic interaction where people are aware of the ways that their actions affect each other. A strategy is an action that a person may take when that person is unaware of the effect of their action on others. A best response is the strategy that results in the socially optimal outcome if all players choose it. A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players. Answer: A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.
The following table shows how the payoffs to the Singhs and Kapurs depend on their choice of cars. The first entry in each box is the payoff to the Singhs. Consider the following proposed remedies for the positional externality. Which of these would induce both families to choose small environmentally friendly cars?
A tax of 1.75 on large petrol hungry cars. A legally binding agreement that if they buy different types of cars, the family which buys the large car will pay 1.0 to the other family. A subsidy of 1.75 on small environment-friendly cars. Answer: -A tax of 1.75 on large petrol hungry cars. -A subsidy of 1.75 on small environment-friendly cars.
Which of the following statements regarding Nash equilibrium are correct?
In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. A Nash equilibrium occurs whenever one player can benefit from the other player's loss. A dominant strategy equilibrium is a Nash equilibrium. A Nash equilibrium is a dominant strategy equilibrium. Answers: -In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. -A dominant strategy equilibrium is a Nash equilibrium.
Which of the following statements regarding the Rock-Paper-Scissors game is correct?
Playing Scissors is the dominant strategy. There exists a pure strategy Nash equilibrium (where players are only allowed to play one strategy). There exists a mixed strategy Nash equilibrium (where players are allowed to randomise).Playing all strategies with equal probabilities is a mixed strategy Nash equilibrium. There exists more than one mixed strategy Nash equilibria. Answer: There exists a mixed strategy Nash equilibrium (where players are allowed to randomise). Playing all strategies with equal probabilities is a mixed strategy Nash equilibrium.
According to Elinor Ostrom, which of the following statements about the problem of "tragedy of the commons" are correct?
Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. Even if all individuals were completely selfish, repeated interactions would definitely result in cooperative outcomes. Individuals care about trust and reciprocity. Agreements for cooperation must be enforced by governments. Answer: -Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. -Individuals care about trust and reciprocity.
Which of the following are public goods?
Streetlights. Library books. Fresh air. Official statistics.
Alan and Beatrice are students who are suspected of colluding on their assignment. The examiners are going to interview each of them individually, in separate rooms. The following table shows the payoffs of Alan and Beatrice, if both were completely selfish, depending on whether each decides to Deny or Confess. Assume that unless stated otherwise, Alan and Beatrice are completely selfish. In which of the following cases could the examiners' scheme fail to produce the outcome (Confess, Confess)?
Alan is so fond of Beatrice that he would never confess that they colluded. Alan and Beatrice manage to communicate using their mobile phones. If one person continues to deny but then finds out that the other person has confessed, the disappointment is equivalent to an extra 10 marks off the mark he/she is given. Alan and Beatrice hate lying. Answer:Alan is so fond of Beatrice that he would never confess that they colluded. -This is the case where Alan places value on the payoff of Beatrice and as such internalises the cost that his action inflicts on Beatrice. In this particular case, his payoff from confessing becomes so low (possibly negative) that it would be a dominant strategy to deny. Then the outcome (Confess, Confess) would never be reached. Alan and Beatrice manage to communicate using their mobile phones. -This will lead to a possible agreement between the two to deny, which will give them a better outcome than (Confess, Confess).
Anna and Brian are discussing what to watch on the TV tonight. There are two choices: a film or the snooker world championships. They can either watch one of the two programmes together, or watch different programmes in separate rooms. The following table represents the payoffs of Anna and Brian, depending on their choice of programme (the first number is Brian's payoff while the second number is Anna's). Based on this information, which of the following statements are correct?
Brian's dominant strategy is to watch snooker. Anna's dominant strategy is to watch the film. The dominant strategy equilibrium is for both to watch snooker. Brian's dominant strategy is to watch the film. Answer: Brian's dominant strategy is to watch snooker. -Brian gets higher payoffs by choosing snooker rather than film, regardless of Anna's choice.
In the following game, 2 people are choosing simultaneously what to plant. The first entry shows the row player's payoff and the second entry, the column player's payoff. Which of the following statements is true?
Cassava is a dominant strategy for both players. There is exactly one Nash equilibrium in this game. There are two ways this game could be played that would maximize the sum of payoffs but differ in the distribution of payoffs between the two players. Answers: There are two ways this game could be played that would maximize the sum of payoffs but differ in the distribution of payoffs between the two players.
Consider a laboratory experiment where participants play 10 rounds of a public goods game. In each round the subjects are given $20. In a randomly selected group of four they simultaneously and privately decide on a contribution from their $20 to a common pool of money, where each person in the group receives $0.40 for every dollar contributed, including the contributor. For example, if the other three members contribute $10 each then your payoff is $32 if you don't contribute, or $26 if you do. The following figure shows the evolution of average contributions over the rounds when the experiment was conducted in different locations around the world. Based on this information, which of the following statements is correct?
The results prove that subjects are completely selfish. Repeating the game makes the subjects more altruistic in later rounds. A disappointed expectation of reciprocity may be the reason for the falling contributions over the rounds. The evidence suggests that playing only one round ensures high contributions. Answer: A disappointed expectation of reciprocity may be the reason for the falling contributions over the rounds.
Bruce owns a cooperative project with two other members. Any member that chooses to put in a full day of work faces a cost of £50 but produces a total income of £120, which is shared amongst the three. So, for example, if Bruce and one other member do a full day of work, then the income per member is (£120 x 2)/3 = £80, leaving Bruce with a net income of £80 - £50 = £30. Assume that a member must either put in a full day of work or none at all. Based on this information, we can conclude that:
The socially optimal outcome (one with the highest total net income) is when all work. The dominant strategy equilibrium of this public goods game is when no one works. Bruce is better off not working, irrespective of the actions of the other members. Bruce's net income when all three members work is £80. Answer: -Bruce is better off not working, irrespective of the actions of the other members. -The dominant strategy equilibrium of this public goods game is when no one works.
The following game represents the interaction between two software engineers, Astrid and Bettina, who are working together to write code as a part of a project. Astrid is better at writing Java code, while Bettina prefers C++. The numbers represent the pay in thousands of dollars for completion of the project. Based on this information, which of the following are true?
There are two Nash equilibria: (Java, Java) and (C++, C++). If Astrid can choose the format first and commit to it, then (Java, Java) will be chosen. If the two can make an agreement beforehand, including a transfer of $500 from Bettina to Astrid, then (C++, C++) will be chosen. If the two can make an agreement beforehand, including a transfer of $3,500 from Bettina to Astrid, then (C++, C++) will be chosen. Answer: -If Astrid can choose the format first and commit to it, then (Java, Java) will be chosen. -There are two Nash equilibria: (Java, Java) and (C++, C++).
Anthony loves going to the opera while Becky loves watching football. The following diagram shows the payoffs for their choice of activity. For example if Anthony chooses opera and Becky chooses football, then the activities are valued at £10 to Anthony and £20 to Becky, respectively. Assume that they can only choose one activity (i.e. they cannot randomise). Based on this information, which of the following statements is correct?
There are two Nash equilibria: (Opera, Opera) and (Football, Football). If Anthony announces that he will choose Opera and sticks to it, then (Opera, Opera) will be chosen. If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen. If Anthony offers £50 to Becky for coming to the opera with him, then (Opera, Opera) will definitely be chosen. Answer: If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen. With the payoff (60, 30) for (Opera, Opera), it now becomes a Nash equilibrium so it may be chosen. However, (Football, Football) remains a Nash equilibrium and therefore without coordination beforehand, there is no certainty that (Opera, Opera) will be chosen.
Which of the following statements regarding social preferences are correct?
They are the preferences of society as a whole. Altruism is an example of social preferences. An individual has social preferences if he does not care about the outcomes of others in society. "Keeping up with the Joneses" is an example of behaviour that could be motivated by social preferences Answer: -Altruism is an example of social preferences. -Keeping up with the Joneses" is an example of behaviour that could be motivated by social preferences.