Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 5PA
To determine
The validation of the statement based on Arrow's impossibility theorem.
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Ken walks into an ice-cream parlor.Waiter: “We have vanilla and chocolate today.”Ken: “I’ll take vanilla.”Waiter: “I almost forgot. We also have strawberry.”Ken: “In that case, I’ll take chocolate.”What standard property of decision making is Kenviolating? (Hint: Reread the section on Arrow’simpossibility theorem.)
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Principles of Economics (MindTap Course List)
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- 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? Solution sent me fast ..arrow_forwardTom and Jerry are room mates. They spend a total of 80 hours a week together in their room. Tom likes loud music, even when he sleeps. His utility function is UT(CT, M) = CT + M, where CT is the number of cookies he eats per week and M is the number of hours of loud music per week that is played while he is in their room. Jerry hates all kinds of music. His utility function is M² 12 UJ = CJ Every week, Tom and Jerry each get 12 chocolate chip cookies sent from home. They have no other source of cookies. We can describe this situation with a box that looks like an Edgeworth box. The box has cookies on the horizontal axis and hours of music on the vertical axis. Let the bottom-left corner be the origin for Tom, and the bottom-right corner be the origin for Jerry. Suppose the dorm's policy is "rock-n-roll is good for the soul." Thus, M=80 in the initial endowment. Consider a trade between Tom and Jerry: Jerry gives Tom one cookie for reducing one hour of music. Then the change in Jerry's…arrow_forwardIn Las Vegas, roulette is played on a wheel with 38 slots, of which 18 are black, 18 are red, and 2 are green (zero and double-zero). Your friend impulsively takes all $361 out of his pocket and bets it on black, which pays 1 for 1. This means that if the ball lands on one of the 18 black slots, he ends up with $722, and if it doesn't, he ends up with nothing. Once the croupier releases the ball, your friend panics; it turns out that the $361 he bet was literally all the money he has. While he is risk-averse - his utility function is u(x) =, where x is his roulette payoff - you are effectively risk neutral over such small stakes. a. When the ball is still spinning, what is the expected profit for the casino? b. When the ball is still spinning, what is the expected value of your friend's wealth? c. When the ball is still spinning, what is your friend's certainty equivalent (i.e., how much money would he accept with certainty to walk away from his bet). Say you propose the following…arrow_forward
- Nicolaus I Bernoulli offers his friend Pierre Rémond de Montmort a game where they need to repeatedly toss a fair ducat until they get a head for the first time. The game stops then, and they count the number n of coin tosses it took to get the desired outcome, and Montmort gets 2^n ducats. Assume that Montmort's utility function is u(w)=w^0.14. How much should Montmort pay to play this game?arrow_forwardSuppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $140 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?.arrow_forwardWe consider a game between two players, Alice and Bob. Alice chooses a number x (between -infinity and +infinity), and Bob chooses a number y (between -infinity and +infinity). Alice's payoff is given by the following function: 35 x + 87 x y - 95 x squared. (the last entry is "x squared".) Bob's payoff is given by the following function: 30 y + 42 x y + 75 y squared. (the last entry is "y squared".) Calculate Alice's strategy in the (unique) Nash equilibrium of this game.arrow_forward
- On Sundays, people in Los Angeles consider a boat to Catalina Island to spend the day on the beach there. The utility that a person gets from visiting Catalina is 1-[n/10] – p , where n is the number of visitors on the island and p is the price of round-trip transportation (by boat). (Note that a visitor obtains more satisfaction if there are fewer other visitors on the island). The utility of staying home is zero. In equilibrium, how many people visit the island on a given Sunday? ( Your answer should depend on p.)arrow_forwardIt is the week before the Yule Ball Dance, and Victor and Ron are each contemplating whether to ask Hermione. As portrayed above, Victor moves first by deciding whether or not to approach Hermione. (Keep in mind that asking a girl to a dance is more frightening than a rogue bludger). If he gets up the gumption to invite her, then Hermione decides whether or not to accept the invitation and go with Victor. After Victor (and possibly Hermione) have acted, Ron decides whether to conquer his case of nerves (perhaps Harry can trick him by making him think he’s drunk Felix Felicis) and finally tell Hermione how he feels about her (and also invite her to the dance). However, note that his information set is such that he doesn’t know what has happened between Victor and Hermione. Ron doesn’t know whether Victor asked Hermione and, if Victor did, whether Hermione accepted. If Ron does invite Hermione and she is not going with Victor— either because Victor didn’t ask, or he did and she…arrow_forwardEconomic agents for example consumers or firms often do things Economic agents (for example, consumers or firms) often do things that at first glance seem to be inconsistent with their self-interest. People tip at restaurants and when they are on vacation even if they have no intention to return to the same place. Firms, sometimes, install costly pollution abatement equipment voluntarily. How can these deviations from Nash predictions be explained? Economic agents for example consumers or firms often do thingsarrow_forward
- 100 people are choosing between two beaches to go to in the Florida Keys. Beach L is big and never gets crowded, but it is not very nice; the utility from going to Beach L is u(L) = 60. Beach M is much nicer but very small, so it gets crowded; the utility from going to Beach M is u(M) = 100-NM ; NM is the number of people that %3D go to Beach M. 5) The Nash equilibrium number of people that go to Beach L is A) 20 B) 40 C) 60 D) 80 E) 100 5).arrow_forwardTwo roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn’t, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn’t, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3.What is the Nash equilibrium of this game? Group of answer choices Joe cleans, John doesn’t John cleans, Joe doesn’t Both of them clean the apartment Neither of them clean the apartmentarrow_forwardImagine that you are at dinner with an acquaintance and that you are each independently choosing what to order for dinner: a burger (which costs $8), or a chicken ($12). In terms of enjoyment, you each have the same preferences: you value the burger at $14, chicken at $17. In other words, if you were dining alone and ordered a burger, your payoff would equal $14- $8 = $6. In this case, however, you will split the bill equally with your companion and thus your payoff depends both on your own order and the order of your acquaintance. Specifically, each diner's payoff is equal to the value of their own meal minus half the cost of the total bill. They also get a payoff of $2 when both of them choose the same meal. (a) Write down the normal form representation of the game in which both players are independently choosing between the actions Burger, Chicken. (b) What are pure and mixed Nash equilibria? Draw best response graphs according to beliefs.arrow_forward
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