Why is the equilibrium in a trust game socially inefficient?
What will be an ideal response?
In a trust game, the first mover has to decide whether or not to trust the second mover. If he chooses to trust, the second mover can either cooperate or defect. If he cooperates, both the players will earn a higher payoff than they would have if the first player chose not to trust. If the second player defects, he will earn a higher payoff than the first player. Therefore, the second mover always has an incentive to defect. Given that the second mover is likely to defect, the first mover chooses not to trust. This results in a socially inefficient equilibrium because both the players can improve their payoffs by changing their respective strategies.
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During World War I (1914–18), hourly wages
(a) decreased in nominal and real terms. (b) increased in nominal and real terms. (c) increased in nominal terms but decreased in real terms. (d) decreased in nominal terms but increased in real terms.
In the United States, the official poverty line is based on:
A. the price of housing. B. the price of clothing. C. the price of food. D. the average income of the lowest quartile of income earners.
A firm's accounting profit is called a normal profit when its:
a. accounting profit is equal to zero. b. economic profit is equal to zero. c. opportunity cost is equal to zero. d. average cost is minimum. e. economic profit is equal to accounting profit.
For the aggregate supply curve, the profit effect
A. Provides an incentive for producers to decrease output when prices rise. B. Is temporary in the short run, while in the long run it is canceled out because the cost effect dominates. C. Dominates in the long run and causes the curve to be upward-sloping. D. Along with the cost effect causes the curve to be downward-sloping in the long run.