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1
Q

hWhat is positive economics?

A

objective and fact-based where the statements are precise, descriptive, and clearly measurable. These statements can be measured against tangible evidence or historical instances.

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2
Q

What is normative economics

A

subjective and value-based, originating from personal perspectives or opinions dependent on notions of welfare

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3
Q

Is this a normative question ‘Are people better off if they know their habit formation tendencies’

A

Yes as what is better off? It is subjective

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4
Q

How do economists approach the Kitty Genovese Problem and how do they model this

A

They care about just one person calling the police:
* Each person helps with probability p
* Probability no one helps is (1-p)^n

Thus, probability that at least one person helps is

1-(1-p)^n

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5
Q

What is the set-up of the Kitty Genovese Game

A

public goods problem

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6
Q

What assumptions do we make about the players in the Kitty Genovese Model

A
  1. Rationality- each neighbour has a belief about the behaviour of other neighbours and best responds to that
  2. Beliefs are correct
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7
Q

what does the P(calling) being between 0<p<1 imply

A

Neighbour is indifferent between calling or not calling such that their expected payoff is the same whether they call or not, giiving them no incentive to deviate.

Payoff from calling = Payoff from not calling

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8
Q

Find the implied solution from the neighbour being indifferent between calling or not calling

A
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9
Q

What does this solution imply

A

As n increases, the probability that someone calls the police decreases

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10
Q

Draw the game theory matrix for the Kitty Genovese Game and identify the nash equilibriums

A

2 nash equilibriums in top right and bottom left. Explain why.

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11
Q
A

B and D

Moral Decay - Normative
Should- Normative

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12
Q

Define consumption bundle

A

The bundle of goods consumed

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13
Q

What consumption bundle will a rational agent always consume

A

the bundle that optimises her preferences given her income and the prices of the goods that are avaliable

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14
Q

What is the budget line

A

P(x1)X1 + P(x2) X2 = Y

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14
Q

what is always the y,x intercept and gradient of the budget line

A

y intercept: x1/Y
x intercept: x2/Y

gradient: -P(x2)/P(x1)

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15
Q

Where is the optimal consumption bundle on a graph + the optimal consumption rule

A

gradient of indifference curve = gradient of budget line

(exchange rate in market = exchange rate in preferences)

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16
Q

Define a company

A

a social organisation that buys or hires productive inputs, coordiantes them in production to produce goods and services, and then sells the output

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17
Q

Our assumptions about firms

A
  1. Decision making carried out by one agent (avoids principal-agent problem)
  2. Firm objective is profit maximisation
  3. Profit = Revenue - Oppostunity Costs
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18
Q

How is a firm restrictied in the short run compared to the long run

A

Short run, at least one input factor is fixed.

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19
Q

What is the production function

A

q=q(l,k) - the higher number of unit ouputs given l units of labour and k units of capital

q=output/unit time
l = people-days labour/unit
k= (machine days)/unit time

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20
Q

Marginal Product of Labour

A

By how much does output increase if we employ one more unit of labour

NOTICE CURLY D, because partial derivative of q(l,k) w.r.t L

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21
Q

Marginal Product of Capital

A

By how much does output increase if we employ one more unit of capital

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22
Q

What are the 2 general types of production functions

A
  1. Fixed Coefficients Production function (Pedagogical)
  2. Variable coefficients
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23
Q

Fixed coefficient production functions

A

Labour and Capital must always be used in fixed proportions e.g. 2 brewer hours and 1 brewing system to produce 1 pint per hour.

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24
Q

Variable Coefficient Production Functions

A

Marginal product of each factor increases then decreases but always remains positive

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25
Q

With variable coefficient production, what does the marginal product of a factor depend on

Provide the usual assumption and graph of the variable coefficients production function.

A

Depends on the quantitites used of all factors. L and K become cooperant factors

Usual Assumption:

If k increases holding L constant then MPL rises
If L increases holding K constant then MPK rises

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26
Q

What are the different returns to scale and what are the implications for the plant size.

A

figure out decreasing returns implications

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27
Q

Assumptions about returns to scale

A

Production functions displays firstly increasing and then decreasing returns to scale over a range of output

–> implies there is an efficient level of production

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28
Q

Assumptions of a rational consumer

A
  1. Completeness
  2. Transitivity
  3. Continuity
  4. Non-Satiation
  5. Convexity
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29
Q

What is completeness

A

Ability of a consumer to choose between options or be indifferent

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30
Q

What is transitivity

A

if x>y and y>z, then x>y

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31
Q

What is continuity

A

a technical assumption

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32
Q

what are the main 3 assumptions that allow us to use a utility function to represent preferences

A

Completeness, Transitivity, continuity

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33
Q

What is non satiation

A
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34
Q

What is the key implication of non-satiation

A
  • Indifference curve slope downwards and the preferred set is above the indifference curve
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35
Q

What is convexity and the key implication

A

Convexity means a preference for averages

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36
Q

What is the implication of non-convex preferences

A

A preference for extremes rather than averages

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37
Q

What are the main styles of preferences

A
  1. Cobb Douglas
  2. Quasi-Linear
  3. Perfect substitutes
  4. Perfect Complements
  5. Non-Convex
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38
Q

What is the Cobb Douglas Function and what does it look like

A

u(x1,x2) = (x1)^a* (x2)^B
where a>0 and B>0

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39
Q

What is the Quasi Linear Function and what does it look like

A

u(x1,x2) = x1 + v(x2)
or
u(x1,x2) = v(x1) + x2

where v(0)=0, v’(.)>0 and v’’(.)<0

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40
Q

What is the Perfect Subtitutes Function and what does it look like

A

u(x1,x2) = ax1 + Bx2

where a>0 and B>0

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41
Q

What is the Perfect Complements Function and what does it look like

A

u(x1,x2) = min(ax1,Bx2) where a>0 and B>0

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42
Q

What is the Non-convex Function and what does it look like

A

u(x1,x2) = a(x1)^2+B(x2)^2

where a>0 and B>0

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43
Q

Uncompensated demand function maximised subject to…

A

x1(p1,p2,m) and x2(p1,p2,m) subject to:

  • Budget constraint
  • Non Negativity constraints x1>0, x2>0

Also called Marshallian Demand

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44
Q

What are the steps to find uncompensated demand

A
  1. Find MRS and Price Ratio
  2. Check non-satiation and convexity satisfied, explain implications
  3. Find MRS=Price Ratio
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45
Q

What is a general rule for cobbs douglas funcitons with the form

u(x1,x2) = (x1) ^ a * x2 ^ 1-a

A

P1X1(p1,p2,m) = am

p2x2(p1,p2,m)= (1-a)m

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46
Q

How is the demand curve derived from indifference curves

A

Demand is derived when holding fixed prices of other products as well as income and tastes

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47
Q

PED

A
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48
Q

give ab example of finding PED from cobb douglas

A
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49
Q

YED and example

A
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50
Q

XED and example

A
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51
Q

Complements

A

commodity pairs that the consumer likes to consume jointly

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52
Q

Substitutes

A

Commodity-pairs whre one commodity is consumed to the exclusion of the other

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53
Q

How does complementary nature effect relative price changes

A

Less sensitive as what matters is the price of the bundle.

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54
Q

What are the 2 main effects when a price changes

A
  1. Price Ratio Changes: one good cheaper relatively (substitution effect)
  2. Consumer feels richer or poorer (income effect)
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55
Q

What is the Hicksian method of decomposition

A

Hicksian: Take new budget line and move it parallel till it hits the original indifference curve. Creates new point (A’)

From A —> A’ will be just substitution effect (as price ratio same)

From A’ –> B will be just income

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56
Q

What is the slutsky method of decomposition

A
  1. Start with original budget line and move it parallel until you can afford original consumption
  2. Reoptimise to form a new optimal consumption bundle

move from A –> A’ as substitution effect as income eliminated

Move from A’ –> B is income effect

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57
Q

what are the effects of income and substitution on quantity consumed

A

Substitution: always go for cheaper product
Income: dep. on YED

Combined effect depends on which is stronger (if opposing)

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58
Q

Decompose this with the Hicksian method.

Determine the effects of the income and substitution effect, and thus wherever each good is a normal or inferior good.

A
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59
Q

How is a Giffen Good defined in income and substitution effects

A

If the income effect outweights the substitution effect

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60
Q

draw the graph of sandwhich and sushi when sushi is an inferior good and sandwhich is a normal good

A
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61
Q

Draw the effect of a an increase in the price of sushi if sushi is a giffen good

A
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62
Q
A
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63
Q

What are the 3 main ways to measure the effect that the price change had on the consumer

A
  1. Compensating Variation - ‘How much money should we give the consumer so that they will be exactly as well off as before the price change’
  2. Equivalent Variation - ‘How much money would the consumer be willing to pay to avoid the price change’
  3. Consumer Surplus
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64
Q

What is the difference between compensated and uncompensated demand and how they are calculated

A
  1. Uncompensated (Marshallian) Demand maximises utility given prices and income - x1(p1,p2,m)

Fix income + prices (fix budget line). Then get onto highest possible indifference curve

  1. Compensated (Hicksian) Demand minimises the cost of obtaining utility at prices - h1(p1,p2,u)

FIx utility and prices to fix indifference curve and gradient of budget line. Get onto lowest possible budget line.

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65
Q

How can the substitution effect be quantified

A

Change in x1 through substitution is approximately

dh1/dp1 * change in p1

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66
Q

How can the income effect be quantified

A

Price rise –> income falls by x1* change in price

dx1/dm(x1change in price)

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67
Q

Considering the quantification of income and substitution effects, how do you combine this

A

substitution effect - income effect

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68
Q

When is consumer surplus=compensating variation=equivalent variation

A

price change is small
No income effect

In general, consumer surplus is in between the the measures

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69
Q

what is the base weighted price indicies formula

A
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70
Q
A
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71
Q

When production function q(l,k) is used, what is the total costs equation

A

W = wage rate, r= capital rental price, L= quantity of labour, k= quantity of capital

C= wl + rk

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72
Q

What are the conventional fixed and variable costs

A

Convential to take k as fixed and L as variable

(distinguish between fixed and sunk costs)

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73
Q

What is total cost in the short run

A

C(q) = F + wl(q)

F= rk0 = fixed costs
(plant size)

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74
Q

what is the short run variable cost function

A

V(q) = C - F

thus, V(q) = wl(q)

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75
Q

what is the marginal cost function in SR and what is it equivalent to in terms of MPL and wage

A
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76
Q

What are the Average Total Costs (ATC)

A
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77
Q

What are the Average Variable Costs (AVC)

A
78
Q

What happens when q=0 for costs

A
  • At q=0, total costs equals fixed costs C=F
  • AC= infinity, AVC=MC
79
Q

Draw the TC and VC graph

A
80
Q

How to see long run total cost?

A

there is one short run total cost curve for each value of k

Plot all SRTC curves croeesponding to all possivle valuies of K and define LRTC as the mioonimum cost at whicha ny given level of output can be produced when all inputs can be varied.

81
Q

How can we find the lowest AC on the LRTC

A

Draw lines from LRTC points to origin

One with the smallest angle has the lowest AC

82
Q

LRAC and LRMC graph

A
83
Q

What do we assume firms choose

A

doesnt matter as both effect each other.

but we assume they choose quantity

84
Q

What are the different revenue functions for a price-taker and monopoly

A

Price-Taker Firm:

Revenue(q) = P * q

Monopoly:

Revenue(q) = P(q) * q

85
Q

For a price taker, describe how to find the profit maximissation price and quantity

A

FOC:
Profit(q) = p * q -C(q)
Profit’(q) = 0 –> p-C’(q) = 0
p = mc

SOC justify maximum:
Profit’‘(q)<0 –> -C’‘(q)<0

BORDER CONDITION:

Is q=0 or the shutdown price better than solution?

86
Q

For a simple monopolist, describe how to find the profit maximisation price and quantity

A

Profit= p(q) * q - C(q)

FOC:
Profit’(q)=0 —> R’(q)=C’(q)

SOC:
R’‘(q)-C’‘(q) < 0

Border Condition:

Is q=0 or shut-down price better than solution?

87
Q

What is first degree price discrimination

A

Charge each citizen according to their willingness to pay for beer - captures entire consumer surplus

88
Q

What is second degree price discrimination

A

charging consumers a different price for the amount or quantity consumed

89
Q

what is third degree price discrimination

A

charging different types of consumers a different price

90
Q

Draw a firm and highlight the supply curve and how to calculate starting point and break even

A
91
Q

How is labour related to MC mathematically

A

MC = W * dL/dQ

MPL = Marginal Productivity of Labour

MPL = dQ/dL

92
Q

What is the wage equal to when profit is maximised

A

Wage = MVPL (Marginal Value of the Productivity of Labour)

MVPL= MPL * Price

essentially the same as MRPL lol

93
Q

answer part a)

A
94
Q

answer b)

A
95
Q

answer c)

A
96
Q

what 3 factors is the demand for labour reliant on

A
  1. Plant Size
  2. Output Price
  3. Wage Rate
97
Q

Draw the labour demadn curve at certain fixed levels of capital

A
98
Q

Assumptions of labour supply

A
  • Allocating time between paid employment and leisure
  • Enjoys both leisure and consumption (income)
  • Marginal utility of both income and leisure are positive but diminish
  • Both are complements in consumption

Individual utility depends on income (I) and daily leisure (R=hours)

U=U(I,R)

Individual requires a minimum numbner of leisure hours

99
Q

How can the effects of a wage increase be decomposed

A
  1. Substitution Effect (always negative)

as wage goes up, leisure is more expensive

  1. Income Effect (positive if income and leisure are normal goods)
99
Q

Assuming the individual is endowed with non-labour income (=V) and willing to work as much as they can. Build a model with budget constraint and indifference curves to find the optimal position

A

Max U=U(I,R) subject to I=V + w * L
0<L<L max

slope of -w

99
Q

how do we derive an individuals labour supply curve from this model

A
100
Q

Hicksian Decompose the effect of an increase in the wage rate if leisure is a normal good

A
101
Q

How does the net effect of a wage increase an individuals supply of labour change

A
  • At low levels of income, substitution effect outweighs income effect
  • At high level income effect outweights substitution

causes backward bending blah blah

102
Q

What are the 2 main potential effects of robots

A
  1. Displacement Effect- displalcing workers from previously performing tasks
  2. Productivity Effect-Other industries/taks increase labour demand as workers become more productive
103
Q

What is Separation Theorem 1

A

When credit markets are perfect inndividuals can first calculate optimal investments using NPV and then calculate optimal consumption plan

104
Q

What are the conditions for perfect credit markets

A
  1. Interest Rate for Borrowing = Interest Rate for Lending
  2. No constraints on how much you can borrow as long as it is within your means
  3. Perfect and costless –> ensures no one takes on loans that they cannot repay aand that all debts are repaid
105
Q

What is separation theorem 2

A

When credit markers are imperfect

The decisions to save or borrow are interdependent so NPV is not enough to calculate the optimal investment plan

106
Q

What is the model of intertemporal consumption

A

Individual makes plans for today and future in terms of how much they want to consumer at each period and how much they want to save/borrow

107
Q

What are the model assumptions of intertemporal consumption

A
  • 2 time periods
  • Income in 2 periods y0 and y1
  • Saving and borrowing possible at interest rate r
  • Consumer derives utility from consumption in the 2 periods with preferences described u(c0,c1)

Choose c0 and c1 to maximise utility subject to a intertemporal budget constraint and non-negatiity constraints

108
Q

Form the equation for the intertemporal budget contraint

A

Period 0: savings s0= y0 - c0> 0
(or borrowing if < 0)

Period 1: dissaving c1 = y1 + (1+r)s0
(or repaying debt)

Combining:
c1 = y1 + (1+r)(y0 - c0)

Rearranging:
c1 = (y1 + (1+r)y0) - (1+r)c0

109
Q

What is the nature of the graph of the intertemporal budget constraint

A

Straight line with gradient -(1+r)

110
Q

Draw the intertemporal budget contraint graph, identifying the saving, borrowing, endowment points and axis intercepts

A
111
Q

What are the 2 main ways the intertemporal budget constraint is expressed

A
112
Q

general assumptions of borrowing and saving decisions

A
  • Typical consumer pref - completeness,transitivity,continuity –> U(c0,c1)
  • Maximises U(c0,c1) subject to intertemporal budget constraint and non-negativity constraints
  • Assume non-satitation and convesity assumptions are satisifed
113
Q

What is the key result of an interest rate rise

A
  • never makes a saver worse off
  • usually makes a borrow worse off
114
Q

draw the effect of an interest rate rise on a borrower

A
115
Q

Hicksian Decompose the substitution and income effect of the increasses in the interest rate. Explain the effect of both.

A
116
Q

Why is the saver always better off after a rate increase (show graphically)

A
117
Q

Decompose the income and substitution effect of an increase in the itnerest rate for a saver

A
118
Q

Show how a borrower could become a saver after the rate change

A
119
Q

How do imperfect credit markets impact the intertemporal budget contraint

A

Rate of borrowing (Rb) > rate of saving (Rs)
causes kinked budget line

borrowing seg. gr: = -(1 + Rb)
Saving seg. gr. = -(1+Rs)

120
Q

how does the credit limit in imperfect credit markets impact a borrowers utility - show graphically

A
121
Q

PV and FV formulae

A

FV= (1+r)PV

PV= FV/(1+R)

122
Q

What are the implications of Credit Market Imperfections (CMI) such as Rb>Rs and credit limits

A
  • Consumption and investment decisions are imperfect
  • Investment can be below its optimal level
  • Can generate poverty traps
123
Q

What are the more realistic assumptions of Behavioural Economics

A
  • People do make decisions like in the ‘rational’ model but they have preferences that differ from those typically assumed by economists
  • They make mistakes, they have different procedures to make decisions
124
Q

What are some common fallacies

A
  • People are imperfect statisticians
  • Illusory superiority - rating yourself abive average
  • Hot Hand- attributing ability to luck
125
Q

What is the evidence for the hot hand fallacy

A
  • Tversky found no statistical difference in the probability of a next shot being successful after a series of successful shots compared to a series of unsuccessful shots
  • HOWEVEr by looking at data that starts with a series of unsuccessful shots you introduce a selection bias

tldr;

no statisitical difference in probabilities actually is evidence for a hot hand in data

126
Q

How does behavioural economics relate to the assumption of preferences

A

People can still be rational agents, just have different preferences to the typical assumptions

e.g. Altruism: gain utility from others wellbeing

127
Q

What is the decision and experience utility

A

Decision Utility: Utility when making the consumption decision - hot state

Experience Utility: Utility at the time of consumption itself - cold state

128
Q

Consider a consumer with income ‘m’ facing prices p1=p2=1 with u(x1,x2) = Y* x1 + x2

find the solution at hold and cold states (where y varies)

A
129
Q

What are the hot and cold states

A

Refer to emotional states

Hot states - getting excited, instinct

Cold states - thinking thoughtfully

130
Q

What happens to welfare if decision making is in the hot state and consuption in the cold state

A

Cold state = true ‘experience utility’: u(x1,x2)= y * x1 + x2

  • Actually selected x1=m, utility ym<m
  • Should’ve selected x2=m, utility m

welfare optimising bundle (x1,x2)=(0,m)

130
Q

Implications of hot and cold state

A
  • Market free choice not optimal
  • Market exploits states e.g. tempting advertising
131
Q

How can taxes fix this negative externality of different utilities. What are the issues with it?

A

Taxes can cause people to switch pref.

but hurts individuals who’s hot and cold self like the same good so pareto improvement is not possible

132
Q

How can nudges influence A type people without distorting B type people

A
  • Create a default option of x1=0
  • Allow A-types to opt out to choose x1>0 but requires effort
133
Q

From these preferences, work out:

  1. Intertemporal budget constraint
  2. Uncompensted demand

Use these to draw a relaionship of saving when young, consumption at young and old

A
134
Q

Draw the different old and young preferred position on a graph

A
135
Q

Primitives of simultaneous move games

A
  1. Set of players: N= (1,2,…,n)
  2. For each player i in N, a set of actions

Ai= (a,b,…)
Profile of actions is a vector (a1,a2,… an) specifying for each player i in N an action ai in Ai

  1. A preference over the set of all profiles of actions, ‘>’
136
Q

Define Nash Equilibrium

A

Nash Equilibrium is when neither player has an incentive to change their decision for a more profitable payoff

137
Q

What is a strictly dominanted action

A

For any belief of a player about the actions of other players, this action is never taken as another action leads to a strictly higher payoff

Rational players will never take a strictly dominated action.

138
Q

Find Nash Equilibriums

A

BB, SS
?

139
Q

Steps to find MNE of matching pennies

A
  1. Focus on probability of other player
  2. Work out probability of other player impacting this players payoffs
  3. Indifference, thus equivalence

Key Idea: Player 1 chooses her probability of odds to make the blue player indifferent

140
Q

How does prisonners dilemma relate to firms choice of competition or collusion

A
141
Q

Describe the process of Bertrand Competition with these premises

A

Each firm decreases price to just below competitiors price

eventually equilibrium at p1=p2=MC, no player can deviate

142
Q

Describe the process of Cournot Competition

A
  • Work out each firms best response to another firm choosing q1/2
  • Done by maximising profit, then putting in terms of firms quantity
  • With 2 best responses, equate to find nash equilibrium
  • Find profit max price + quantity. Split profit.
143
Q

Describe Stackelberg Competition

A

One firm has a first mover advantage in choosing quantity.

Utilise backward induction to find SPE:

  1. Find Firm 2’s best response to Firm 1s choice (FOC)
  2. Substitute FOC of Firm 2 into Firm 1s quantity function
  3. Optimise Firm 1 Choice with FOC
144
Q

do mon ami

A
145
Q

Find the nash equilibrium of the hoteling location game

A

always has choice for guaranteeing half the business by going middle.

Both vendor 1 and 2 can have >=1/2
but V1+V2=1
Thus v1=v2=1/2
–> implies either equidistant from centre or in centre

but equidistant not NE as profitable deviation is middle

nash equilibrium is to go to the same location and split

146
Q

How does the hotelling game apply to politics - median voter theorem

A

By shifting to the middle, can grab more of the voters of the other side than before.

Each player knows this so moves to centre –> no profitable payoff possible

147
Q

What is a first price auction

A

sealed bid, highest bid wins and pays that

148
Q

Second price auction

A

sealed bid, highest bid wins and pays the 2nd highest bid

149
Q

write a payoff table for each scenario and find the equilibrium

A
150
Q
A
151
Q

do first and second price auctions provide the same revenue

A

yes, so do english and dutch, as long as each bidder knows their own valuation

152
Q

how do you model entry of the market as a sequential game

A

2 stages:
1. Potential entrant chooses wether to enter
2. Incumbent chooses wether to fight

extensive form games are analysed using a game tree

153
Q

Solve this

A

Analyse by backward induction, work out last player option and how the previous player responds to that and so on…

Eventually achieve Subgame Perfect Equilibrium- set of strategies which constitute a NE in everygame.

solution: Starbucks enter as then cafe will quit

this is as by backward induction we can see that the threat is not credible

154
Q

How does a finite reprtition of games impact cooperation in the prisoners dilemma

A

finite repitition -> backward induction

Period before last no cooperation –> thus no credible cooperation throughout due to backward induction

155
Q

How does infinite repitition help solve the problem of cooperation in the prisoners dilema

A
  • Can no longer do backward induction
  • But can do subgame perfect equilibria –> find long term strat that will benefit you the most
  • This could be to cooperate - dep. on firm no. and discount rate
156
Q

How do you calculate if you should cheat or collude in an infinitely repeated game

A

let d = 1/(1+r) be firms discount factor

  • If firm cheats, other firms adopts a grim trigger strategy with a minmax punishement (often P=MC)

Optimal for collusion IF:

Present discounted value of collusion stream > Present discount value of cheating stream

157
Q

What is a grim trigger strategy

A

Collude but responds to cheating with punishment forever

157
Q

What is a minmax punishment

A

Worst punishment that one player can do to the other, given that the punished is responding optimally to its punishment

158
Q

General equation to determine if collusion worth it

A

number of firms < total collusion income/cheat income * (1-discount)

159
Q

What is taste-based discrimination

A

Preference for certain traits when interacting or choosing wether to interact with different people

160
Q

What is belief-based discrimination

A

Individuals might believe that individual with different traits might behave differently

161
Q

What is search intensity

A

likelihood the police will search a driver of a particular race

162
Q

What is the hit rate

A

The likelihood that upon a search drugs are found in the vehicle of a driver of a particular race.

163
Q

With this set up, draw the matrix and determine the equilibriums

A

There is only a mixed-strategy equilibrium

164
Q

Races may differ in their payoffs and how may the police differ if they are taste based discriminating

A

If taste based:
* cost of searching race x < cost of searching race y

If not taste based

Cx=Cy, but police have different beliefs about hit rates of different races so engage in belief based discirmination

165
Q

For hypothesis 1 with no taste-based discrimination. Find the hit rates from this matrix. What is the conclusion

A

h is such that the police should be indifferent between searching and not

h=c/v for both–> only belief based discrimination –> hit rates equalised across all races

166
Q

Find the hit rates of hypothesis 2 taste-based discrimination when cx< cy

A
167
Q

Model of Employer taste-based discrimination with different races

A
168
Q

Model of Belief-Based Discrimination on productivity type of worker based on race

A
169
Q

what are isoquants

A

indifference curve for the combination of inputs (labour or capital) such that a given quantity of output q could efficiently be produced with.

170
Q

for any level of output q’, what will the isoquant do?

A

connect all the combinations (l,k) such that q(l,k)=q’

171
Q

Draw isoquants for a fixed coefficient production function

A
172
Q

Draw isoquants for variable production function

A
173
Q

properties of isoquant

A
  • negative slope
  • non-intersection
  • Coverage of (l,k) space
  • Convex to origin
174
Q

What is the MRTS (marginal rate of transformation)

A
  • Gradient Function of isoquant

‘With fixed output - suppose i use one more unit of labour, how many units of capital can i forgo or vice vera’

175
Q

MRTS calc

A
176
Q

What are isocost lines

A

‘budget line’

incorporate wages and cost of capital

C = rK + wL

177
Q

How is altruism a possible explanation for cooperation

A

Depending on extent, payoff includes payoff of others –> show cooperation as rational choice

177
Q

What is reciprocal altruism

A

Positive Reciprocity- People want to help those who are nice to them

Negative Reciprocity- harm those who are nasty to them

177
Q

draw a matrix with positive reciprocity

A
177
Q

What about the Dictators Game might suggest that altruism isnt the only influence for cooperation

A

Dictators game, out of 10 quid avg kept 7.5

not altruism as giving away for benefit of a < 1

in theory can offer 1p, yet people usually reject offers below 20%

178
Q

what does rationality imply

A

implies revealed preferences

179
Q

What is the common solution to these problems:

How do we put normative value on the distributions of outcomes in society, how do we balance consumer and producer surplus

A

Pareto Efficiency

180
Q

Define Pareto Efficiency

A

When comparing two different distributions of utilities enjoyed by individuals in society.

A Pareto Dominates B if under A all individuals are better off than under B + at least one individual is strictly better off

181
Q

When is a distribution of utilities by individuals in a society Pareto Efficient

A

if there is no other feasible situation that Pareto dominates is

182
Q

what does pareto efficiency imply for wealth distribution

A

wealth should be distributed to maximise the sum of utilities (surpluses) will lead to a Pareto Efficient Scenario

183
Q

What is the issue of aiming for Pareto Efficiency (maximising consumer surplus)

A

consumer surplus does not take into account distributional aspects

184
Q

What nuances are there in using utility to evaluate policies

A

‘Decision’ vs ‘experience’ utility? which to use

185
Q

What is libertarain Paternalism

A

Base assumption of revealed preferences - preferences and choices are one and we can only infer preferences by looking at choices
(e.g. consumer surplus)

However hot + cold state imply that consumers dont make their choice their real preference.

Governments ‘paternally’ nudge consumers to their real preference, helping them make their optimal choice

EC1A3 (1 decks)

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