Category: Economics

N > 1 people are standing at a corner of a street. Suddenly, a car knocks a person down and runs away. Someone needs to call an ambulance to save the victim’s life. Each person wishes that the person be saved. They earn happiness worth 1 unit from the person being saved. However, they all wish that someone else call an ambulance. Calling an ambulance costs 1 2 units. Each person decides simultaneously and privately whether to call an ambulance.
(a) What are the strategies available to the players, i.e., the N bystanders who saw the accident?
(b) What are the pure strategy Nash equilibria of this game?
(c) Let us look at a mixed strategy equilibrium of this game wherein each player calls an ambulance with probability p. What is the players’ expected payoff from calling an ambulance given that the others are following this strategy?
(d) What is the players’ expected payoff from not calling an ambulance given that others are following this strategy?
(e) Equating the two, compute the value of p as a function of N.
(f) Is p increasing or decreasing in N? Plot this in Excel or any other graph plotter available online to see if you cannot do this mathematically.
(g) As N becomes very large, what is the probability that nobody calls an ambulance?

Case Study 15: Price and Output Determination under Perfect CompetitionGreenFields Agriculture Ltd., a Zambian firm, produces organic maize in a market characterized by perfect competition. Numerous small-scale farmers offer identical maize products, and no single farmer can influence the market price. The current market price for organic maize is ZMW 2.50 per kilogram. GreenFields’ cost structure indicates that the marginal cost (MC) of producing maize equals the market price at an output level of 10,000 kilograms. The firm’s average total cost (ATC) at this output level is ZMW 2.00 per kilogram. GreenFields is contemplating whether to expand production, maintain current levels, or exit the market.
REQUIRED:
Explain why GreenFields Agriculture Ltd. is considered a price taker in this market structure.
Determine the profit or loss GreenFields would incur at the current output level.
Should GreenFields increase production beyond 10,000 kilograms? Justify your answer using marginal analysis.
Discuss the long-run equilibrium condition for firms in a perfectly competitive market and its implications for GreenFields.
If the market price falls below the average variable cost, what should GreenFields’ short-run decision be? Explain.

3. Consider two countries: The United States and the United Kingdom. In 2014, growth in both economies, as measured by their GDP growth were similar at 2.3% for the US and 3.0% for the UK. Assume that these growth rates are expected to remain the same for several years to come. Suppose that the current US money growth rate of 6% annually, while the UK chooses to match its GDP growth rate and grow the money supply by 3% annually. Consider the US as the Home country and the UK as the Foreign country. Use the quantity theory to answer the following questions ( L constant) (20 pts.)
What is the expected inflation rate in the US and in the UK?
What is the expected rate of appreciation or depreciation of the British Pound versus the US Dollar on an annual basis?
If the UK desired the British Pound to depreciate versus the US Dollar by 2% annually in order to fuel export growth, what policy decision would it undertake? Name one potential downside of this decision for the UK’s citizens.
Draw the time series diagrams to illustrate the effects of a reduction in the growth rate of money supply in the US from 6% to 3%. Assume that the UK leaves its money growth rate constant. Show the effects on the US interest rate, prices, the real money supply and E$/f.

John wants to buy a certain type of used car. Paula owns this type of used car. Paula claims that her car is in excellent condition. She knows the real condition of her used car. Her car is not in good condition.John does not know automobile mechanics and thus does not know whether Paula’s car is in excellent condition.John is willing to buy a used car in good condition at $21,000 and a used car in less than good condition at $11,000.Paula makes an offer to John for $17,000. Since her car is in less-than-good condition, she would be willing to sell it to John or anybody else for $10,000.Assume the probability of buying a good car in the used car market is 50%, and, therefore, the probability of buying a bad car is 50%.
Is this situation an adverse selection problem or a moral hazard problem or both? Explain your answer. (15 points)
Will John accept Paula’s offer ( $17,000 )? Explain your answer. ( 25 points)
What is the maximum price at which John would buy Paula’s car? Explain your answer. ( 20 points)
Identify two ways to reduce the information asymmetry between John and Paula regarding the real condition of the car. Explain your answer. (15 points)

You produce widgets for sale in a perfectly competitive market at a market price of $10 per widget. Your widgets are manufactured in two plants, one in Massachusetts and the other in Connecticut. Due to changes in the labor market in Connecticut, you are forced to raise wages there, so that marginal costs in that plant increase. In response to this, should you shift production and produce more in your Massachusetts plant?
Part 2
Due to the higher marginal cost of production at the Connecticut plant, you should
Part 3
not change production at either plant.
not shift production to the Massachusetts plant, but you should reduce production in the Connecticut plant until that plant’s marginal cost of production equals price.
not shift production to the Massachusetts plant, but you should increase production in the Connecticut plant until that plant’s marginal cost of production equals marginal revenue.
increase production at the Massachusetts plant until the marginal revenue of the total amount produced is equal to the marginal cost of production there.
shift production to the Massachusetts plant until the marginal cost of production at the two plants is equal.