Q1(1) - (so that his payo/ is $20 & $10 = $10)...

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University of British Columbia Economics 303 (921): Intermediate Microeconomic Analysis II Summer Session Term II, 2007 M. Vaney Quiz #1 Time Allowed: 25 Minutes Total Marks: 20 1. Alex is arriving at the border after a day trip to Seattle. While in the U.S., Alex purchased a bottle of whiskey which he values at $20 . Because he has been outside Canada for less than 24 hours he has no duty-free allowance for alcohol. Brenda, who works for the Canada Border Services Agency (CBSA) has asked Alex if he has Both Alex and Brenda must make their respective choices simultaneously . If Alex doesn²t declare his purchase and no inspection takes place he will have a payo/ of $20 (the value of the whiskey). When Alex declares his purchase he pays duty of $10
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Unformatted text preview: (so that his payo/ is $20 & $10 = $10) : If Alex doesnt declare and an inspection is carried out the CBSA will conscate his bottle of whiskey and ne him $10 (payo/ will be & $10 ). An inspection costs the agency $5 . Any duties or nes paid by Alex go to the CBSA as revenues (contribute to the CBSA payo/s). The bottle of whiskey is poured down the drain (does not contribute to CBSA payo/s). (a) Show the normal form of this game (the game matrix or table) and identify best responses of both players (5 marks) 1 (b) Find a Nash equilibrium to this game. (8 marks) (c) Suppose the game is sequential. Alex &rst chooses whether or not to Declare. Brenda, after observing Alexs choice, then decides whether or not to inspect. Draw the game tree to the sequential game and use backward induction to identify the Subgame Perfect Nash Equilibrium. (7 marks) 2...
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Q1(1) - (so that his payo/ is $20 & $10 = $10)...

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