Consider the following game, which comes from James Andreoni and Hal Varian at the University of Michigan. A neutral referee runs the game.There are two players, Row and Column. The referee gives two cards to each:
2 and 7 to Row and 4 and 8 to Column. This is common knowledge. Then, playing simultaneously and independently, each player is Â· asked to hand over to the referee either his high card or his low card. The referee hands out payoffs- which come from a central kitty, not from the players' pockets- which come from a central kitty, not from the players' pockets-that are measured in dollars and depend on the cards that he collects. If row chooses his low card, 2, then row gets $2; if he choses his High card, 7 then Column gets $7. If column chooses his low card, 4, then column gets $4; if he chooses his high card, 8, then row gets $8.

(a) Show that the complete payoff table is as follows:

		Column	Column
		low	high
row	Low	2,4	10,0
row	High	0,11	8,7

(b) What is the Nash equilibrium? Verify that this game is a prisoners' dilemma.

Now suppose the game has the following stages. The referee hands
out cards as before; who gets what cards is common knowledge. At stage
I, each player, out of his own pocket, can hand . over a sum of money,
which the referee is to hold in an escrow account. This amount can be
zero 'out cannot 'oe negative. When both have made then Stage l choices,
these are publicly disclosed. Then at stage II, the two make their choices
of cards, again simultaneously and independently. The referee hands
out payoffs from the central kitty in the same way as in the single-stage
game before. In addition, he disposes of the escrow account as follows.
If Column chooses his high card, the referee hands over to Column the
sum that Row put into the account; if Column chooses his low card,
Row's sum reverts back to him. The disposition of the sum that Column
deposited depends similarly on Row's card choice. All these rules are
common knowledge.
(c) Find the rollback (subgame-perfect) equilibrium of this two-stage game.
Does it resolve the prisoners' dilemma? What is the role of the escrow account?

brownclam274

Person	Judy	Sandy	Dee	Shawntae	Martha
Income	$40,000	$75,000	$85,000	$35,000	$110,000

The above table lists the incomes for the 5 people who live on the remote island nation of Richland.

1. Refer to Table 21.1. If Martha's income doubled to $220,000 while the incomes of the other four residents did not change, what would happen to the original median income onâ Richlandia?

A.It would increase by $22,000.

B.It would increase by $44,000.

C.It would not change.

D.It would double.

2.When we compare shares of income earned by U.S. households over the past 40 years, which of the following statements about the distribution of income isâ true?

A.The percentage of total income represented by each quintile has decreased.

B.Lower income households gained at the expense of higher-income households.

C.The largest gain in income percentage is in the top 5% of households.

D.The percentage of total income represented by each quintile has increased.

3.From 1970 to 2012, the Gini coefficient in the United States has

A.dramatically decreased.

B.remained is relatively unchanged.

C.steadily increased.

D.more than doubled.

4.Income distribution in the United States over the past 40 years has become more equal.

True

False

5.Income inequality in the United States has increased in part due to technological change. How does technological change contribute to incomeâ inequality?

A.It is responsible for a majority of new products on the market, and these products are only affordable to higher-income households.

B.It reduces the cost of producing goods and therefore lowers the value of labor services.

C.It allows manufacturers to produce products with lessâ labor, and this reduction in the demand for labor lowers wages at all skill levels.

D.It has created many higher-income jobs for skilled and trainedâ workers, leaving the income of less-skilled workers relatively unchanged by comparison.

6.Income inequality in the United States has increased in part due to globalization. How does globalization contribute to incomeâinequality?

A.It allows domestic firms to hire low skilled workers anywhere in the world, putting U.S. workers in competition with foreign workers. This has caused the wages of low skilled workers to fall relative to the wages of other workers.

B.It increases the demand for a wide variety of products which in turn increases prices beyond the reach of average income

households.

C.It allows producers to exploit workers and reduce the wages they are willing to pay those workers.

D.It reduces the cost of producing goods and therefore lowers the value of labor services.

7.Rachel, a large pineapple producer in Hawaii, lobbies Congress to limit imports of pineapples to be able to sell her pineapples at a higher price and greatly increase her income. This possible source of income inequality is due to

A.technology changes.

B.rent seeking.

C.globalization.

D.productivity differences.

8.If growing income inequality results from changes in technology that, as a whole, make society better off, this will

A.decrease the size of the economic pie because of income inequality.

B.increase the size of the economic pie.

C.not change the size of the economic pie because the positive technology changes will be offset by the increases in income inequality.

D.result incomplete income inequality as technology continues to change in the future.

9.The belief that having more of something makes you happier but in successively smaller increments is called

A.utilitarianism.

B.diminishing marginal utility.

C.the benefits received principle.

D.transcendentalism.

10.The results of a survey conducted by Dan Ariely and Michael Norton found that Americans

A.show absolutely no preference for the amount of equality in wealth distribution in the nation.

B.have a preference for much less equality in wealth distribution than currently exists.

C.have a preference for roughly the amount of equality in wealth distribution that currently exists.

D.have a preference for much greater equality in wealth distribution than currently exists.

11.In the United States, the highest quintile of income earners contribute ________ of all federal tax dollars received, and the lowest quintile of income earners contribute ________ of all federal tax dollars received

A. 24%; 1.5%

B. 20%; 20%

C. 68.8%; 0.4%

D. 29.4%; 11.5%

12.The question "Is the U.S tax system disproportionate enough?" is a ________ question, and the question "How would higher taxes make the rich behave?" is a ________ question.

A. normative; positive

B. positive; normative

C. positive; positive

D. normative; normative