Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 8, Problem 13DQ
To determine
Ethics of using the nudges.
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One type of systematic error arises because people tend to think of benefits in percentage terms rather than in
absolute dollar amounts. As an example, Samir is willing to drive 20 minutes out of his way to save $4 on a grocery
item that costs $10 at a local market. But he is unwilling to drive 20 minutes out of his way to save $10 on a laptop that
costs $400 at a local store. In percentage terms, how big is the savings on the grocery item? On the laptop? In absolute
terms, how big is the savings on the grocery item? On the laptop? If Samir is willing to sacrifice 20 minutes of his time
to save $4 in one case, shouldn't he also be willing to sacrifice 20 minutes of his time to save $10?
1. Alizeh and Kelly were traveling together and have gotten stranded at an airport overnight.
They have no cash, but they did both think to bring granola bars and turkey sandwiches with
them. They currently each have several granola bars and a few sandwiches. Alizeh announces
that she'd be willing to give up a granola bar for one turkey sandwich. Kelly responds that
turkey sandwiches are bigger than granola bars so she would be willing to give up a granola
bar if she could get half a turkey sandwich. Is Kelly and Alizeh's current allocation of granola
bars and turkey sandwiches efficient? Explain why or why not. (Note that you cannot rely
on a rule here – you have to specifically explain why the allocation does or does not meet the
definition of an efficient allocation.)
4. Suppose that there is a negotiation between two players over a painting. Person 1, the
seller, has no interest in the painting. On the other hand the painting is worth $100 to the
buyer. If the painting is sold at a price in between 0 and 100, both are better off. Player 1
proposes a price p to player 2. Then, after observing player 1's offer, player 2 decides
whether to accept it or to reject it. If the offer is rejected both get zero and the game ends.
Find the unique SPNE of this game.
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