Week 1

Question 1

What is postitive economics?

Answer 1

Is analysis that generates objective descriptions or predictions, which can be verified with data. (objective)

Question 2

What is Normative economics?

Answer 2

Is analysis that recommends what an individual or society ought to do. ( subjective)

Question 3

What words do Normative statements usually include?

Answer 3

‘Should’

Question 4

Is A fall in incomes will lead to a rise in demand for own-label supermarket foods a Positive or Normative statement?

Answer 4

Postitive

Question 5

Is If the government raises the tax on beer, this will lead to a fall in profits of the brewers a Positive or Normative statement?

Answer 5

Positive

Question 6

Is Pollution is the most serious economic problem a Positive or Normative statement?

Answer 6

Normative

Question 7

Is Higher interest rates will reduce house prices a Positive or Normative statement?

Answer 7

Postitive

Question 8

Is “The free market is the best way to allocate resources” a Positive or Normative statement?

Answer 8

Normative

Question 9

Is “The government should increase the tax on alcohol” a Positive or Normative statement?

Answer 9

Normative

Question 10

What is the effect of an increase of 1% income tax on the probability that Russians migrate away from the country? Positive or normative?

Answer 10

Positive Question as you can get information on this.

Question 11

What can we say about the effect on lower earners? Positive or normative?

Answer 11

Positive statement

Question 12

How should the government take the results of this paper into account when setting its tax policy? Positive or normative?

Answer 12

Normative- depends on concern of country and ‘should’

Question 13

Are people better off if they know their habits- formation tendencies? Positive or normative?

Answer 13

Normative question - we need a subjective stand to understand what better off is.

Question 14

Are people aware of their habit information tendenices when they sign up to the gym? Positive or normative

Answer 14

Positive Q, you can get data from this.

Question 15

Should the govt interfere in the market for gyms, given the findings of this paper? Positive or normative

Answer 15

Normative question, what the govt should or shouldnt do depends on what the govt see as right or wrong, thus subjective

Question 16

What accounts for the price schedules of gyms? Positive or normative?

Answer 16

Positive question

Question 17

What are 2 assumptions we make about how people behave?

Answer 17

Rationality and Equilibrium

Question 18

What does rationality mean?

Answer 18

People decide what to buy by weighing all of the known pros and cons of the different options and picking the best options.

Question 19

What does Equilibrium mean?

Answer 19

It is a situation where everyone is simultaneously optimising, ie when no individual thinks he/she has another course of available action that is better of for them.

Question 20

Lets say ronny goes to the supermarket, what does the supply function show?

Answer 20

The supply function results from the optimising behaviour of firms.

Question 21

What does the demand function show?

Answer 21

The demand function results from the optimising behaviour of consumers.

Question 22

When Ronny is at the supermarket what is the theory of optimisation/rationality? (demand)

Answer 22

1) Products i need to choose from 2) Prices 3) My wallet income 4) Preferences: How do I feel about different baskets of products I buy.

Question 23

With supply what do we assume?

Answer 23

With supply we assume that the supermarket wants to maxmise profit at a certain Q e.g. beer Revenue ( q) = p x q Profit = TR - TC

Question 24

In the supermarket what is the equilibrium point?

Answer 24

Qd = Qs, this means that no consumer would buy more and no supplier would want to produce more.

Question 25

What would be the equilibrium in this game matrix?

Answer 25

Both pepsi and cola pick low price as given what the other company does, there is no other strategy that would increase their profits. ( Low price strictily dominates high price)

Question 26

Who was kitty genevose?

Answer 26

She was a bar tender.

Question 27

What was kitty genevose doing after work?

Answer 27

She was walking home from work at 3 am in Queens York just outside her apartment and was stabbed, approximately 87 people witnessed this.

Question 28

Why do Economists study the Kitty geneovese?

Answer 28

Example of why economics can be helpful to analyse and see topical issues like Bystander effect.

Question 29

What is the Bystander affect?

Answer 29

As the number of witnesses increases, this implies the probabitlity of helping is going to go down.

Question 30

Why does the bystander effect occur?

Answer 30

Diffusion of responsibiitly ( the presence of other people create this effect. Because there are other observers, meaning individuals do not feel as much pressure to take action.

Question 31

During the midweek task we watched a video or the zambian government working with LSE researches working to improve health in Zambia?

1) Is Will community health workers lose their connection to the community positive or normative?
2) Is How should the Zambian goverment recruit health workers a positive or normative statement?

Answer 31

1) This is postive as you can measure the connection’ by tracking, however connection can mean something in different communities, so can be normative.
2) Normative statement

Question 32

What is the fundemental thing about rationality?

Answer 32

Rationality doesn’t mean optimising

Question 33

Which of the following statements are considered to be Positive analysis?

a) Based on our calculations, we expect growth to slow down significantly after a no deal brexit.
b) Based on our calculations, we expect growth not to slow down significantly after no deal brexit
c) Based on our calculations, we would not recommend the PM to follow a no deal brexit
d) Based on our calculations, we think that a no deal brexit is not a good outcome for the UK.
e) I believe, based on my simulations, that following a no deal brexit there is a 30% chance that the EU will collapse sometime in the next 30 years.

Answer 33

A B and E

Question 34

With the kitty geneovese case what is the probablity someone called the police is what?

Answer 34

n being the number of witnesses.

Question 35

What economic model helps to solve this kitty geneovse problem?

Answer 35

Game theory

Question 36

Now we are going to work through the kitty geneovese murder case,

So there are 38 neighbours or more generally N

Each neighbour can call or not call

The cost of calling is 1

Payoff if someone calls = X>1

so summarise the payoffs

Answer 36

Best outcome is if someone else calls X

Second best outcome is if you call x-1 ( cost of calling is 1)

third best outcome is if no one called ( kitty dies) 0

Question 37

As you prefer others to call, what is this an example of?

Answer 37

A public good ( if one person helps, everyone will benefit)

Question 38

What is the solution concept we will study here?

Answer 38

Nash equlibrium

1) This includes rationality ( each neighbour has a belief about the behaviour of other neighbours and best responds to that belief.)
2) Beliefs are correct ( What i believe about my neighbour is true)

Question 39

If the probablity is between 0

Answer 39

The neighbour is indifferent between calling or not calling.

Question 40

What is the payoff of calling, not calling?

Answer 40

Question 41

To solve for P how do we find this?

Answer 41

We equate the probability of calling and not calling

Question 42

Solving below will give you what?

Answer 42

This tells us the probability of someone calling the police as a function of the amount of neighbours

Question 43

So finally with all the math does this prove the bystander effect?

Answer 43

The solution = the probability that someone calls the police is decreasing

Question 44

(PROBLEM SET)Consider the kitty genovese model we considered on Thursday. Assume that X=2 and that the number of neighbors is 2.

Like we did in lectures, we are trying to find the equilibrium value of p, the probability that each neighbor called. Answer each of the following questions.

A. Assuming that the other neighbor is calling the police with probability p, write down the payoff of a neighbor from calling the police.

Answer 44

ANSWER: Let us focus on Neighbor 1. She knows that neighbor 2 is calling with probability p. If neighbor 1 calls: - She pays the cost of 1 for calling

• With probability p neighbor 2 is also calling in which case the police will act and neighbor 1 will enjoy the payoff of X=2.
• With probability 1-p neighbor 2 is not calling but as neighbor one is calling the police will act and neighbor 1 will enjoy the payoff of X=2.

So the expected payoff of neighbor 1 when she calls is: p × 2+(1-p) × 2 - 1 = 2-1 = 1

( OR X-1 WHICH 2-1 = 1 )

Question 45

B. Assuming that the other neighbor is calling the police with probability p, write down the payoff of a neighbor from not calling the police.

Answer 45

1-(1-P ^n-1) x X

= 1-(1-p^2-1) x 2

= 1-1p = px2 = 2p

Question 46

C. Assuming that each neighbor is calling the police with probability p, write down the equilibrium condition under which each of the neighbors has the same payoff from calling the police as they have from not calling the police

Answer 46

x -1 = ( 1 - (1-p)^n-1) x X

From previous 1 = 2p

Question 47

Solve for p in the equilibrium condition you found above.

Answer 47

2p = 1

p = 1/2 ( you are indifferent in calling half of the time

Question 48

Calculate the probability that the police receives a call in this example.

Answer 48

ANSWER: Each neighbor calls with probability p. The police receives a call when at least one of the neighbors call. The probability that no neighbor calls is (1 − p) ^2 . So the probability 2 that at least one called is 1 − (1 − p)^2 = 3/4 .

Question 49

What will happen to the probability p you have calculated above if we increase X to 3? Interpret this result.

Answer 49

ANSWER: If X=3 the new equilibrium condition becomes

p × 3 = 2 ⇔p = 2/3

As X increases, it is more important for the neighbors that the police will act. We see from our calculations that in equilibrium this implies that each neighbor calls with a higher probability, which seems intuitive!

Question 50

Which of the following statements are true? (MCQ quiz)?

Select one or more:

a. The bystander effect is the conjecture that the bigger the audience witnessing a crime, the more criminals are motivated to commit the crime .
b. The bystander effect is the conjecture that the bigger the audience witnessing a crime, the less criminals are motivated to commit the crime .
c. The bystander effect is the conjecture that the bigger the audience witnessing a crime, the more people in the audience are motivated to act against the crime .
d. The bystander effect is the conjecture that the bigger the audience witnessing a crime, the less people in the audience are motivated to act against the crime .
e. The bystander effect itself might, or might not imply that the probability that someone from the crowd acts to stop a crime is decreasing in the crowd size

Answer 50

D and E

Why e? As we saw in the lecture, the bystander effect itself is about individuals’ behaviour and not about the aggregate behaviour of the group. For example, the fact that each individual is less prone to act, does not immediately imply that the probability that someone will act goes up or down!

Question 51

Which of the following statements are true?

Select one or more:

a. In the kitty Genovese model we analysed we show that as the number of neighbors increases, the probability that any neighbor calls the police is decreasing while the probability that someone calls the police is increasing.
b. In the kitty Genovese model we analysed we assume that the crime itself is not affected by the size of the crowd that witnessed it.
c. In the kitty Genovese model we analysed we show that as the number of neighbors increases, the probability that any neighbor calls the police is decreasing but also that the probability that someone calls the police is decreasing.
d. In the kitty Genovese model we analysed we show that as the number of neighbors increases, the probability that any neighbor calls the police is increasing at the same time as the probability that someone calls the police is increasing.

Answer 51

B AND C

In the kitty Genovese model we analysed we assume that the crime itself is not affected by the size of the crowd that witnessed it. Our model is about how witnesses react to a crime and not about how criminals react to the crowd.

Question 52

a. With more and more crimes being streamed live on the internet, our conclusion from working with the kitty Genovese model is that we should expect less action against these crimes.
b. The behaviour of the 37 witnesses of the Kitty Genovese murder is evidence of the moral decay in cities such as NY.
c. The behaviour of the 37 witnesses of the Kitty Genovese murder is consistent with both our Kitty Genovese model but also with experiments in psychology.
d. Based on what we have learned in the lecture, the Government should ban Facebook from streaming live feeds.

Answer 52

B and D

Moral decay can be seen as subjective.

Question 53

What is a decentralised market ?

Answer 53

Decentralised markets is when we leave people, markets to do there own thing, organically. We let people decide what to buy andn how much they want to sell.