Question

In: Economics

Use the work-leisure choice diagram to illustrate the following cases where an individual is: A) Unwilling...

Use the work-leisure choice diagram to illustrate the following cases where an individual is: A) Unwilling to go on welfare because the welfare payment is too low. B) Indifferent between welfare and work. C) Induced to move off welfare because of an increase in her wage. D) Induced to move off welfare because of a change in preferences between income and leisure. E) Induced to move off welfare by a reduction of 100 percent implicit tax on earnings.

Solutions

Expert Solution

2 The UK O±ce of Fair Trading has recently unveiled a plan that will o®er

immunity from prosecution to ¯rms who blow the whistle on their co-cartel conspirators. In the U.S., this tactic has proven extremely successful: since its introduction in

1993, the total amount of ¯nes for anti-competitive behavior has increased twentyfold.

Show how the tactic initiated by the U.S. Department of Justice and soon to be

followed by the O±ce of Fair Trading changes the rules of the game played between

¯rms in a secret cartel.

Solution: Prior to the introduction of the plan, each cartel ¯rm would have two options:

(a) to stick by the agreement or (b) to deviate and set lower prices. With the introduction of

the plan, the ¯rm has a third option: (c) to blow the whistle. Let ® be the probability that

the DOJ discovers the price conspiracy. High values of ® imply a low expected value from

(a). The same is true of (b), though probably to a lesser extent. Finally, (c) is invariant to

the value of ®. We would thus expect that, for high values of ®, (c) is the best strategy.

With the introduction of the plan, the ¯rms now play a second prisoner's dilemma type

of game. Before, it was whether to price high or price low. Now, it's whether to blow the

whistle or not. Firm would be better o® if neither of them blew the whistle. However, if ®

is high, the bblowing the whistle is a dominat strategy.

4.3 Figure 1 represents a series of two-player games which illustrate the rivalry between Time magazine and Newsweek. Each magazine's strategy consists of

choosing a cover story: \Impeachment" or \Financial crisis" are the two choices.10

The ¯rst version of the game corresponds to the case when the game is symmetric

(Time and Newsweek are equally well positioned). As the payo® matrix suggests,

\Impeachment" is a better story but payo®s are lower when both magazines choose

the same story. The second version of the game corresponds to the assumption

that Time is a more popular magazine (Time's payo® is greater then Newsweek's

when both magazines cover the same story). Finally, the third version of the game

illustrates the case when the magazines are su±ciently di®erent that some readers

will buy both magazines even if they cover the same story.

For each of the three versions of the game,

(a) Determine whether the game can be solved by dominant strategies.

(b) Determine all Nash equilibria.

(c) Indicate clearly which assumptions regarding rationality are required in order

to reach the solutions in (a) and (b).

Solution:

(i) Impeachment is a dominat strategy for both players. It follows that (Impeachment, Impeachment) is the unique Nash equilibrium. All we need to assume to reach this conclusion

is that players are rational and know their own payo®s.

10In each cell, the ¯rst number is the payo® for the row player (Time).


Related Solutions

use a diagram to show how optimal choice of consumption and leisure changes when an income...
use a diagram to show how optimal choice of consumption and leisure changes when an income tax at rate t is introduced.
Answer the following questions using the standard leisure-work choice model a)Draw a budget constraint for a...
Answer the following questions using the standard leisure-work choice model a)Draw a budget constraint for a worker has a job which pays a wage of $10.00 per hour. Draw an indifference map for typical worker. Assume that the worker is able to choose any number of hours of work and this worker’s optimal position is to work 8 hours a day. Show this point on your graph. b)Suppose the worker now receives $60 per day non-labor income. On your graph...
For each of the following scenarios, use a supply and demand diagram to illustrate the effect...
For each of the following scenarios, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity in the specified competitive market. Explain whether there is a shift in the demand curve, the supply curve, or neither. (a) (5 points) An unexpected temporary heat wave hits the East Coast. Show the effect in the ice cream market in New England. (b) (5 points) The government introduces a tax on ice cream...
- Use separate diagrams of your choice to illustrate and answer the following: a) Can a...
- Use separate diagrams of your choice to illustrate and answer the following: a) Can a given consumer have more than one indifference curve when deciding between (say) free time and working? If so, can those indifference curves cross at any point? Why or why not? Why are the indifference curves convex? b) Is the concept of Nash equilibrium useful when we have a dominant strategy equilibrium? Why/why not? Is the concept of Nash equilibrium useful to predict outcomes of...
about Blockchain, how they work, and where they can be useful, There are many interesting use-cases...
about Blockchain, how they work, and where they can be useful, There are many interesting use-cases of blockchains in areas like: (a) Finance (Asset Management, Insurance claims, cross-border payments, loans) (b) Smart buildings (smart appliances/IoT, property titles) (c) Smart contracts (healthcare, certificates, identification documents) discuss some example(s) of application(s) in any of these areas?
Design the Use Case Diagram and the test cases for Online Mobile Store Use Cases Phase...
Design the Use Case Diagram and the test cases for Online Mobile Store Use Cases Phase II
description 
 Example: Online Computer Store Requirement 1 – Laptops Requirement 2 - Desktops Requirement 3 - Mainframes Use Cases Testing phase 2 Requirement 1 - Laptops - Test case Requirement 2 - Desktops Requirement 3 - Mainframes
In each of the following cases, use a diagram to show which curve, supply or demand,...
In each of the following cases, use a diagram to show which curve, supply or demand, shifts, and explain how the market transitions to a new equilibrium price and quantity. Be sure to include both supply and demand in your diagrams. •Tina Turner is a legend of R&B and soul music. Given her advanced age, she will probably die soon. What does this do to the market for Tina Turner collectibles and memorabilia? •In November, 2015, a series of coordinated...
Use the labor/leisure model to illustrate the impact of increasing the implicit tax rate t in...
Use the labor/leisure model to illustrate the impact of increasing the implicit tax rate t in a TANF program from t-,50 to t-1.00 on the labor supply decision of the following three groups: (a) those people working zero hours; (b) those people who are receiving some ben fits, but who are also working in the market a few hours per week
The following questions all concern information asymmetry: a. Use a diagram to illustrate the deadweight loss...
The following questions all concern information asymmetry: a. Use a diagram to illustrate the deadweight loss that, in the absence of government intervention, results from information asymmetry. b. Briefly describe a government policy that can partially or entirely eliminate the deadweight loss resulting from information asymmetry. c. Should all information asymmetry problems be eliminated through government intervention? If not, on what types of information asymmetry should the government focus? Briefly explain?
(C) Use well-labelled diagram(s) to analyze the effect of the following cases on the market for...
(C) Use well-labelled diagram(s) to analyze the effect of the following cases on the market for apples. (i) A fall in the price of pears. (ii) Farmers use a new fertilizer that makes apple trees more productive.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT