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Ec101F10MT1_101026

# Ec101F10MT1_101026 - c Copi Ec101 Fall 2010 Midterm 1...

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ˇ Copiˇ c, Ec101, Fall 2010, Midterm 1, 10/26/2010. Version 1 There are 16 questions. You have 60 minutes to answer them. The questions have appro- priate indications as to whether they are easy, medium, or hard. There are two extra-credit questions (the two hard questions). Important! READ the questions and answers carefully so that you do not make unnecessary mistakes, and so you can do your best! Do not try to cheat - you cheat yourself and others, and if you are caught, you get in trouble. Important: In Figure 1 (C), the payoffs to Player 1 (the one on the left) are left and down, and the payoffs to Player 2 are right and up. 1

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Problem 1. (easy) Popeye is facing several choice problems. He is never moody, and the conditions in the environment around him never change. In which of the following cases are his choices consistent (the alternative that he chooses is on the right-hand side of the arrow)? a. { ocean, ski, relax } → relax , { ski, relax } → ski , and { ocean, ski } → ski . b. { ocean, ski, relax } → ocean , { ski, relax } → relax , and { ocean, ski } → ski . c. { ocean, ski, relax } → relax , { ski, relax } → relax , and { ocean, ski } → ski . d. { ocean, relax } → ocean , { ski, relax } → relax , and { ocean, ski } → ski . e. None of the above. Problem 2. (medium) Olivia knows that Popeye prefers spinach over tobacco, by at most \$3 (in terms of monetary compensation), and he is never indifferent. Olivia and Popeye operate only with dollar bills, no change, and each one has plenty of dollar bills. She wants to figure out how much precisely in terms of monetary compensation, Popeye prefers spinach over tobacco. Which of the following ways would surely accomplish that for Olivia? (notation ‘tobacco+\$1’ means ‘tobacco plus earn \$1 of money’, while ‘spinach-\$1’ means ‘spinach and pay \$1 of money’) a. Offer Popeye a choice between spinach and tobacco, and a choice between spinach and tobacco plus \$1. b. Offer Popeye choices { spinach - \$3 , tobacco } , and { spinach, tobacco + 1 } . c. Offer Popeye choices { spinach - \$1 , spinach - \$3 , tobacco } , { spinach, spinach - \$1 , tobacco + \$2 } , and { spinach - \$1 , tobacco + \$2 } . d. Offer Popeye a choice { spinach, tobacco + \$2 , tobacco + \$3 } , a choice { spinach - \$3 , tobacco } , and a choice { spinach, tobacco, tobacco + \$1 } . e. None of the above. 2

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