please do the following 10 multiple choice questions and 7 open response questions. Only use original work in all answers and graphs. I will tip $20+ If I get a good grade. The professor project 60-90 minutes to complete this assignment. I don’t mind up to 12 hours to finish it tho

Part 1: Multiple Choice. Please answer each with the most correct answer. (3 points each)

1. Suppose I offer my significant other a gamble of $10 on a coinflip with fair odds. If she picks correctly, she wins $10 or if she picks incorrectly, she loses $10. She turns down my offer. Can we assume her risk preference?

a. yes, she is risk neutral

b. yes, she is risk averse

c. yes, she is risk seeking

d. no, we cannot say anything specific about her preferences.

2. This is a special instance in Game Theory where no players would deviate from their current strategy taking the other players’ actions as given.

a. dominated strategy

b. Nash Equilibrium

c. mixed strategy

d. perfect game

3. Which of these goods could be considered a public good?

a. a toothbrush

b. healthcare

c. fish in the ocean

d. clean air

4. What is the expected value of a coinflip where you win $10,000 on heads or lose $10,000 on tails?

a. $0

b. $5,000

c. [-$10000, $10000]

d. can’t calculate expected value given the current information

5. Suppose picking dinner in my household is a game. My significant other always picks “I am indifferent about what we have” as her strategy, regardless of my choice. From this we can assume “Indifference” is what?

a. a mixed strategy

b. a Nash Equilibrium

c. a dominant strategy

d. an expected value calculation

6. This is a tax that is used to offset an externality.

a. Pigou Tax

b. Coase Tax

c. Clarke Tax

d. Externality Tax

7. This type of good is non-excludable however they are rival in consumption

a. private good

b. public good

c. club good

d. common property

8. Which of the following is a pure strategy Nash Equilibria of this game?

PEAR

(8, 1)

(9, -1)

APRICOT

a. [Apricot, Crow]

b. [Pear, Rooster]

c. [Pear, Crow]

d. [Apricot, Rooster]

ROOSTER

(7, 3)

CROW

(6, 1)

9. The Coase Theorem is only applicable in the instance that these are low or are non- existent.

a. Taxes

b. Property Rights

c. Transaction Costs

d. Judicial Oversight

10. These types of externalities are due to changes that occur within the market and do not represent market failure.

a. Technical externalities

b. Pecuniary externalities

c. Coasian externalities

d. Pigouvian externalities

Part 2: Answer each of these to the best of your ability. (10 points each)

11. Imagine a game of rock, paper, scissors. If a player wins, they get a positive payoff. If a player loses, they get a negative payoff. If the players match, they each get a payoff of zero.

a. Show the game matrix for rock, paper, scissors using +, -, and 0 as payoffs.

b. Are there any pure strategy Nash Equilibria? Explain or demonstrate.

c. Are there any Nash Equilibria in any strategy? Explain.

12. Suppose I want to build a lighthouse, something that could be considered a public good. There are 4 citizens I need to know if this will benefit enough to justify construction. Let’s call them Liz, Kelsey, Raven, and Hannah. Fully illustrate one way I can get them to reveal the actual benefit they will receive from the lighthouse.

13. Suppose there is a common resource, like trees in the Amazon rainforest. The private MC of harvesting these trees is a constant, c. Assume each tree consumed reduces social benefit twice as much as private benefit.

Illustrate graphically the social optimum consumption and private consumption of trees using social benefit, private benefit, and private marginal cost.

Suppose harvesting trees becomes easier, reducing the marginal cost. What effect would this have on the harvesting of common property? Will the market failure be larger or smaller?

14. Calculate the expected value of these gambles:

a. A coin flip where you win $24 on heads, lost $18 on tails

b. A roll of a die where you win $12 on a 1, 2, 3, or 4 and lose $18 on a 5 or 6.

c. a raffle where you win $500 with a probability of 1 in 100, lose $10 otherwise.

d. a game of matching pennies where you win $1 if you match, lose $1 if you

mismatch

15. Economists generally assume people to be risk averse. What does this mean? Illustrate risk averse preferences using a two-outcome framework, and then illustrate risk averse preferences using a utility of wealth framework. Explain as needed.

16. Stevie’s Steel Company of Steele, Alabama is located next to a residential area. Stevie’s Steel Co. produces an externality in the form of pollution (smoke) and noise which disrupts the lifestyle of the nearby residential area.

a. Suppose the neighborhood were to take Stevie’s Steel Co. to court over this issue. Describe the possible outcomes the judicial system could enforce

b. What is the condition under which there could potentially be a Coasian bargaining solution to this problem? Explain how the outcome of a Coasian bargain would be different from the judicial outcome.

17. My best friend Michelle loves to bake. In fact, she is quite good at it and owns her own small business, Farmhouse Sweets. In baking she produces a positive externality for her neighbors, a wonderful smell.

a. Show the private outcome vs. social optimum of Michelle baking using private and social marginal cost curves and a demand curve i.e. show the externality from a costs perspective.

b. How could the local HOA (Home Owners’ Association), the local governing body, incentivize Michelle to produce the socially optimal quantity of baked goods, given that there is an externality? Show how this would work graphically.

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