Question

1. Answer each of the following statements True/False/Uncertain. Give a full explanation of your answer (1-2 sentences should suffice). A fully labeled graph is a welcome addition to any answer (if applicable), though it is not necessary.

A) A Giffen good obeys the Law of Demand.

B) A monopolist always prices in the inelastic portion of consumer demand.

C) If a player has a dominant strategy, that strategy is always part of a Nash Equilibrium.

D) Maximizing total surplus ensures that everyone in society receives an equal share of surplus.

E) Without the assumption of transitivity, a consumer’s indifference curves (over 2 goods) could cross.

F) A consumer will not voluntarily contribute their valuation towards funding a public good.

Please provide E and F aswell :)

Answer 1

A) It shall be noted that for Giffen good, the law of demand does not apply. The demand curve for Giffen good is upward-sloping.

Hence, False

B) In the inelastic portion, the marginal revenue is negative. A profit-maximizing monopoly firm would produce in the region where demand is elastic. Hence, False)

C) It must be noted that any dominant strategy equilibrium is always a Nash equilibrium

A dominant strategy is that strategy that would always be chosen no matter whatever the opponent chooses. Hence, it will always be a Nash Equilibrium.

Hence, True.

D) Total surplus = consumer surplus + producer surplus + government revenue

Thus, maximizing total surplus does not ensure that everyone in society receives an equal share of the surplus. Either consumer surplus can be higher or producer surplus.

Hence False.

E) It shall b noted that Indifference curves are typically represented to be transitive with respect to points on distinct indifference curves. Transitivity exclude indifference curves crossing. Thus, without the assumption of transitivity, a consumer’s indifference curves (over 2 goods) could cross.

Hence, True

F) It shall be noted that a consumer will not voluntarily contribute their valuation towards funding a public good because it is a good that is both non-excludable and non-rivalrous. Hence, True