Author Question: One Sunday afternoon, your mother tells you and your brother that you can quickly make some money by ... (Read 182 times)

mcmcdaniel · **on:** Jun 29, 2018

One Sunday afternoon, your mother tells you and your brother that you can quickly make some money by helping her wash dishes. Both of you decide to help her. Once both of you are done with the work, your mother gives you a 20 bill.

She also says that you can divide the money between yourself and your brother in any proportion you want, but if your brother does not accept the amount he is being given, she will take all of the money back. a) How much money should you offer your brother if he prefers more money to less? b) How much money should you offer to your brother if you know that your brother prefers fairness to money?

Question 2

During the mid-2000s, the average price of a used car fell by nearly 500 and the quantity sold nation-wide decreased by several thousand each year. This set of results is a contradiction of the law of demand.

Indicate whether the statement is true or false

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

Answer to Question 1

a) You should allot a minimum amount of money to your brother if he prefers more money to less as he would always accept your offer and you will be able to make more money.
b) You should make your decision using the method of backward induction in this case. Because your brother values fairness to money, he will not accept the offer if he does not get an equal share of money. In case he rejects the offer, neither of you will get any money because your mother will take the money back. Therefore, you should divide the money into two equal parts.

Answer to Question 2

FALSE