Econ Unit 4

Question 1

Social dilemma

Answer 1

People do not take adequate account of the effects of their decisions on others

Question 2

Strategic interaction

Answer 2

When people are engaged in a social interaction and are aware of the ways that their actions affect others

Question 3

Strategy

Answer 3

An action that a person may take when that person is aware of the mutual dependence of the results for herself and for others

Question 4

Games

Answer 4

Models of strategic interactions

Question 5

Division of Labor

Answer 5

The specialization of producers to carry out different tasks in the production process

Question 6

Payoffs

Answer 6

The benefit to each player associated with the joint actions of all the players

Question 7

In a simultaneous one-shot game:

Answer 7

A player chooses an action taking into account the possible actions that others players can take

Question 8

Best response

Answer 8

Strategy that yields the highest payoff

Question 9

Dominant strategy equilibrium

Answer 9

every player plays his or her dominant strategy

Question 10

Dominant strategy

Answer 10

Action that yields the highest payoff for a player, no matter what the other players do

Question 11

Strictly dominant strategy

Answer 11

The payoff from playing s is strictly greater than the payoff from playing s’

Question 12

Weakly dominant strategy

Answer 12

The payoff from playing s is no less than the payoff from playing s’, AND against at least one strategy of the opponent, the payoff from s is strictly greater than the payoff from s.

Question 13

Pareto efficiency

Answer 13

• Not possible to make at least one better off without making anyone else worse off by moving from that outcome to another feasible outcome
• Is Pareto efficient if no other feasible outcome is Pareto superior to it

Question 14

Nash equilibrium

Answer 14

• A set of strategies (one per player), such that each player’s strategy is the best response to the strategies chosen by everyone else
• No player has an incentive to deviate unilaterally

Question 15

Prisoner’s dilemma

Answer 15

A game with a dominant strategy equilibrium, in which playing the dominant strategy
yields lower individual and total payoffs compared to other strategies

Question 16

Social preferences

Answer 16

Preferences that place a value on what happens to other people, even if it results in lower payoffs for the individual

Question 17

Free ride

Answer 17

• Benefiting from the contributions of others to some cooperative project without contributing oneself
• Dominant strategy

Question 18

What solves free riding

Answer 18

Altruism

Question 19

Inequality aversion

Answer 19

Disliking outcomes in which individuals receive more than others

Question 20

Reciprocity

Answer 20

Being kind/helpful to others who are kind/helpful and vice versa

Question 21

Social norms

Answer 21

Common understanding of how to act in situations when one’s actions affect others

Question 22

The invisible hand

Answer 22

Anil and Bala chose their crops in pursuit of their own interests. Their engagement in the village market resulted in a mutually beneficial division of labor

Question 23

Repeated prisoner’s dilemma

Answer 23

They may refrain from using Terminator for pest control because they recognize the future losses they would suffer as a result of abandoning IPC

Question 24

Public goods game

Answer 24

Players’ willingness to punish others sustained high levels of cooperation in many countries, without the need for agreements

Question 25

Inequality aversion

Answer 25

A dislike of outcomes in which some individuals receive more than others

Question 26

Reciprocity

Answer 26

The friend may have been kind to the lucky money-finder in the past, or kind to others, and deserves to be treated generously because of this