Principles Of Microeconomics
7th Edition
ISBN: 9781260111088
Author: Robert H. Frank, Ben Bernanke, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Suppose that Abe and his brother Moe are lost in the desert and are in need of guidance to find an oasis.
They can seek such guidance from either a burning bush or a golden calf. Abe has the following preferences:
• If Moe chooses to talk to the golden calf, Abe prefers the outcome where he to chooses to talk to the
golden calf than talk to the burning bush.
• If Moe chooses to talk to the burning bush, Abe is indifferent between the outcome where he choose
to talk to the burning bush and the outcome where he chooses to talk to the golden calf.
• Regardless of his own decision, Abe prefers all outcomes where Moe talks to the burning bush than if
he chose to talk to the golden calf.
Moe has the following preferences:
• If Abe chooses to talk to the golden calf, Moe prefers the outcome where he chooses to talk to the
golden calf than talking to the burning bush.
• If Abe chooses to talk to the burning bush, Moe prefers the outcome where he chooses to talk to the
golden calf than talking…
Two players play the Ultimatum Game, in which they are to split $20. A purely rational agent would only reject an offer of …
You are considering going to a football game. However, the roads are cover in ice due to bad weather. Your ticket was a gift. You derive a value of z from attending the game, and a cost of D for driving on the icy roads. Your utility function is given by: ug(Z) + ui(D) = In(Z - 3) - In(2 - D). In your ultimate wisdom, you calculate that the cost of driving on the icy roads is 1 unit (So, D=1). What is the minimum value you must obtain from attending the game, so that you decide to go?
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- Martha spends 5 hours of free time exercising and playing music per day. The table below represents the level of utility she receives from the various combinations of exercise and music activities. For instance, if she only plays music, her total utility from exercise will be 0, and the utility from music will be 50. If she exercises for 1 hour, she will receive a level of utility of 25. Utility is measured in 'utils'; those numbers are arbitrary and designed to quantify the benefits received from various actions. Utility Utility from from Exercise Music 50 utils O utils from O hours of exercise from 5 hours of music 25 utils for 1 hours of 45 utils from 4 hours of exercise music 40 35 45 20 50 The utility patterns in the table illustrate the law of marginal diminishing utility because ... The total utility Martha receives from music decreases The increase in utility for each additional hour Martha exercises falls The total utility Martha receives from exercise decreases Martha…arrow_forwardSuppose Jimi has reference dependent preferences over guitars and money as in Tversky and Kahneman (1991). His utility functions are given below. Gains Gains 400 -2 -2 2 Guitars Losses Losses |-600 -2 What is the least amount of money Jimi is willing to accept to sell one of his guitars? (just enter a dollar amount, i.e., "1000", not "$1000"arrow_forwardMartha spends 5 hours of free time exercising and playing music per day. The table below represents the level of utility she receives from the various combinations of exercise and music activities. For instance, if she only plays music, her total utility from exercise will be 0, and the utility from music will be 50. If she exercises for 1 hour, she will receive a level of utility of 25. Utility is measured in ‘utils’; those numbers are arbitrary and designed to quantify the benefits received from various actions. Utility for Exercise Utility from Music 0 utils from 0 hours of exercise 50 utils from 5 hours of music 25 utils for 1 hours of exercise 45 utils from 4 hours of music 40 35 45 20 50 0 Marginal analysis will help Martha in her decision making regarding how to spend her free time because ... All answers are correct. She will realize which activity is more important to her. She will be able to find the combination of music and exercise which gives…arrow_forward
- Sean is arguing with his girlfriend, Yvette. They have been going out for a little more than two years. YVETTE: I'm leaving you, Sean. Get over it. SEAN: Are you saying that being single will make you happier than you've been with me? Speaking personally, I think the utility we've had in this relationship was much more than you could have had if you'd been single this whole time! YVETTE: I had taken an economics class and the word "utility" rings a bell. It's not that at all. We've had a fine time. It's that the utility I would get by continuing our relationship isn't worth it anymore. SEAN: I've never been dumped by someone citing the law of before. You're a piece of work, you know that? Yvette doesn't hear. She has already walked off, leaving Sean feeling like something of a sunk cost.arrow_forwardMatthew Hamming is stranded on an island. He has decided that he will spend exactly 10 hours a day gathering food. He can either spend this time gathering coconuts or catching fish. He can catch 2 fish per hour and he can gather 3 coconuts per hour. Matthew's utility function is U(FC) = 3F0.60.3 a. How many fish should Matthew catch and how many coconuts should he gather so that his consumption maximizes his utility? Illustrate the equilibrium with a graph b. One day a native inhabitant of another island arrives on the island. The visitor offers Matthew trade of 3 fish for 1 coconut. The trade fee costs 1 fish (that must be paid prior to the exchange). Will Matthew decide to trade? What will Matthew produce and consume? Justify your answer and provide a graph.arrow_forwardI am unsure the direction the utility functions would go in , with this specific scenarioarrow_forward
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