Author Question: Economic agents (for example, consumers or firms) often do things that at first glance seem to be ... (Read 41 times)

penza · **on:** Jun 29, 2018

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?

Question 2

Refer to Table 2-5. Assume Nadia's Neckware only produces ascots and bowties. A combination of 16 ascots and 6 bowties would appear

A) along Nadia's production possibilities frontier.
B) inside Nadia's production possibilities frontier.
C) outside Nadia's production possibilities frontier.
D) at the horizontal intercept of Nadia's production possibilities frontier.

kkenney · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

There are several possible explanations. Firms might voluntarily install pollution abatement equipment if they believe consumers will eventually learn about the firm's polluting behavior and stop buying its products. In some cases, the payoffs may be more complex than just monetary payoffs. For example, people may care about the net benefits that someone else receives. If this is the case, then behavior may reflect social preferences, meaning that the individual's benefits are defined not only by his own payoffs, but also by the payoffs of others. In other examples the implications of a repeated relationship are very different from a game that is played just once.

Answer to Question 2

B