Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 20, Problem 16APA
To determine
Identify the adverse selection problem if made an offer of same price to H and L.
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Two parties, Juan and Ben, have been negotiating the purchase by Ben of Juan's car. Juan receives a new and higher bid for his car from Adriana. How might Adriana's bid change Juan and Ben's threat values?
The threat values are unchanged.
Juan now values the car at the price of Adriana's bid, her bid is his opportunity cost of selling the car to Ben, and that opportunity cost is Juan's new threat value.
Juan's new threat value is the product of the difference between Ben and Adriana's offers and the probability the car will be sold to Adriana.
Juan's threat value is unchanged, but Ben has to consider his new opportunity cost
Crime and Punishment
Ben and Jerry are two partners-in-crime, who have robbed a bank. Ben got caught and is ques-
tioned by the police. He has got three options: to stay silent, confess, or tell the police that it was
Jerry. Jerry can either remain at home, go to the police and blame Ben, or kill Ben's dog and cat.
Ben feels good about confessing if Jerry does not do anything against him and feels good going
to the police otherwise. Jerry on the other hand would hate to kill Ben's dog and cat, but would
indulge in the revenge if Ben went to the police. For Jerry it is bad if Ben goes to the police. Ben
is on the left and Jerry is on top, and their payoffs are on the left/right.
Jerry
Home
Silent
3/4
-4/5-5/3
Confess -2/5 -3/6 -7/-5
Police -3/-7 -1/-6 4/2
Find the Nash equilibrium in pure strategies when
1. Ben and Jerry move at the same time, not knowing what the other does.
2. Ben moves first, then Jerry can observe this and subsequently makes his choice.
3. Jerry moves first, then…
Bleecker Street runs from A to B, as shown in the diagram. The lone convenience store currently in operation along this street is at A.
An entrepreneur who wants to open another store in the neighborhood is weighing a choice between the only two available locations,
C and D. If customers, who are uniformly distributed along Bleecker Street, always shop at the store nearest to where they live, which
of the locations C or D would be optimal from the perspective of customers and why?
A C D
B
O Location D because that would minimize the average travel time for customers.
O Location D because that would mean each store would get an equal share of the market.
O Location C because that would give the new entrepreneur higher profits.
O Locations C and D would be equally attractive because consumers have no reason to care about the relative profitability of
different entrepreneurs.
Chapter 20 Solutions
Macroeconomics
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
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