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If there is no depreciation and risk-neutral consumers know that 20 percent of all new cars are defective, how much do the consumers value a non defective car?
New cars sell for $14,000 each, and used ones for $2,000. If cars do not depreciate physically with use, what is the proportion d of defective new cars?
A firm hires two kinds of workers, alphas and betas. One can't tell a beta from an alpha by looking at her. What is the equilibrium of this scheme?
Can the Condorcet winner lose under a transferable vote system? Show how strategic voting can affect the outcome.
Which condition does the Borda rule violate? Which condition does the Condorcet method fail? Why do we wish to exclude dictatorship?
Assume that all voters have an hourly wage of $10 and that it takes half an hour. What is the number of voters at which voting no longer becomes worthwhile?
Discuss the individual benefits that may arise from a preferred party winning. How large are these likely to be relative to the cost of voting?
Consider a scoring rule in which the preferred option is given one point and all others none. Demonstrate the scope for false voting.
Construct an example of preferences for which the majority voting outcome is not the median. Given these preferences, what is the median voting outcome?
Show that an anonymous social welfare function must have indifference curves that are symmetric about the 45° line.
What do these indifference curves imply about the degree of concern for equity of the social planner? Repeat for the welfare function W = min {U1; U2}.
Should a social planner be concerned with the distribution of income or the distribution of utility? How does the answer relate to needs and abilities?
What is the likely outcome of such a situation? Where will the process stop? Could each of them spend more than the value of the rent? Why or why not?
The government will choose the applicant that spends the most money lobbying. If the applicants cannot collude, how much will each spend on lobbying?
Your expected profit from bidding B is [200 - B] x Probability of winning. Show that the profit-maximizing strategy consists of bidding half your valuation.
Construct a variation of the rent-seeking game without the discontinuity in winning/ losing. Find the pure strategy equilibrium.
An industry is known to face market price elasticity of demand e =-3. What would the Lerner index be at the Cournot equilibrium in this industry?
Education is often viewed as a good with positive externalities. Explain how education might produce positive external effects.
Apply the Cease theorem to explain how costless bargaining will lead to a socially ancient outcome, no matter to whom property rights are assigned.
If the government decides to distribute the permits, does the allocation of permits among firms matter for economic eminency?
How much of the chemical should the market supply at the social optimum? How large is the deadweight loss from the externality?
Construct a tax-subsidy revelation scheme such that it is a dominant strategy for each party to report truthfully their private information.
Plot the curves of the commuting time by car and the commuting time by train as a function of the proportion of car users.
When the monopolist operates on the inelastic part of the demand curve, it can increase profit by producing less.
What gives the government the power to regulate mergers between firms? From the view point of the welfare to society.