Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 20.3, Problem 2ST
To determine
Explain the endowment effect.
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Rosa received a corgi pillow as a raffle prize; she would have been willing to pay $18 to buy it herself. Based on the endowment effect, we would expect Rosa to be willing to sell the pillow.
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Discuss Simon’s concept of “bounded rationality.”
Chapter 20 Solutions
Economics (MindTap Course List)
Ch. 20.1 - Prob. 1STCh. 20.1 - Prob. 2STCh. 20.1 - Prob. 3STCh. 20.2 - Prob. 1STCh. 20.2 - Prob. 2STCh. 20.3 - Prob. 1STCh. 20.3 - Prob. 2STCh. 20 - Prob. 1QPCh. 20 - Prob. 2QPCh. 20 - Prob. 3QP
Ch. 20 - Prob. 4QPCh. 20 - Prob. 5QPCh. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Prob. 9QPCh. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 1WNGCh. 20 - Prob. 2WNGCh. 20 - Prob. 3WNGCh. 20 - Prob. 4WNGCh. 20 - Prob. 5WNGCh. 20 - Prob. 6WNGCh. 20 - Prob. 7WNG
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- Student question Time Left :00:09:43Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = 2X + Y UB(X,Y) = Min(X,Y) The initial endowments are: A: X = 5; Y = 3 B: X = 2; Y = 2 a. Illustrate the initial endowments in an Edgeworth Box. Be sure to label the Edgeworth Box carefully and accurately, and make sure the dimensions of the box are correct. Also, draw each consumer’s indifference curve that runs through the initial endowments. Is this initial endowment Pareto Efficient? b. Now suppose Consumer A gets all of both goods. Is this allocation Pareto Efficient? (You do not need to draw a new graph or illustrate this on the existing graph. Simply answer “yes” or “no.”) c. Now suppose Consumer B gets all of both goods. Is this allocation Pareto Efficient? (You do not need to draw a new graph or illustrate this on the existing graph. Simply answer “yes” or “no.”)arrow_forwardRiley has a new tennis racket for which she paid $75. Haley would like to buy the racket from Riley. Assuming Riley's decision is only influenced by the endowment effect, which of the following amounts would most likely represent how much Riley would have to receive to be willing to sell the racket? a. 200 b. 250 c. 175 d. 100arrow_forwardIn economics, we assume that choices are based on desired outcomes. This concept is known as:arrow_forward
- True or false? While the endowment bundle must lie on the original budget line, it need not lie on the budget line when prices change.arrow_forwardAccording to Galbraith, why is it bad for society to be impacted by the Dependence Effect?arrow_forwardAmaranda and Bartolo consume only two goods, X and Y. They can trade only with each other and there is no production. The total endowment of good X equals the total endowment of good Y. Amaranda's utility function is U(xA, YA) = min{xa, YA} and Bartolo's utility function is U(XB, YB) = max{xg, YB}. In an Edgeworth box for Amaranda and Bartolo, the set of Pareto optimal allocations is O the main diagonal. O both diagonals. O the whole Edgeworth box. O the edges of the box and the main diagonal. O the edges of the box.arrow_forward
- How does the principle of duality influence decision-making in economics?arrow_forwardStyles In an auction, potential buyers compete for a good by submitting bids. Adam Gallinsky, a social scientist from NWU, compared eBay auctions in which the same good was sold. He found on average that, the higher the number of bidders the higher the sales price. For example, in two separate auctions of identical IPods, the one with the higher number of bidders brought the higher sales price. According to Gallinsky, this explains why smart sellers set absurdly low opening prices (the lowest price the seller will accept), such as 1 cent for a new IPod. Use the concept of consumer and producer surplus to explain this reasoning.arrow_forwardDefine the Fisher effect. To what extent do empirical tests confirm that the Fisher effect exists in practice?arrow_forward
- Identify and explain three differences between neoclassical economics economics and behavioral economics?arrow_forwardOne of the following findings of the behavioral economics is widely adopted by the policy makers across the world Humans place greater welfare weights on A avoiding loss than experiencing equivalent gain. People prefer to cut economic loss more than their social loss. Policies aimed at enhancing people's gains C have been found to be more effective than the policies aimed at minimising people's losses Mankind behaves rationally irrespective of D their socio-psychological situations.arrow_forwardConsider a two-good economy, where every person has the endowment w =(0,20). For the following preference, find their demand curve. Use the endowment to identify their offer curve. U = xx1 + x2.arrow_forward
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