Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns $11 while Player B earns $5 . However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive $8 per year for the rest of their lives. If they both keep the agreement each receives $9 per year for the rest of their lives. If the discount
rate is 30 percent per period:
a. Player A will prefer to break the agreement in the first year.
b. Player A will prefer to break the agreement in the second year.
c. Player A will prefer to keep the agreement throughout her life.
d. Player A will prefer to keep the agreement only for the first five years.
C
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If the price of a good falls, the marginal utility per dollar spent on that good
a. also falls b. stays the same c. rises d. will rise or fall, depending on the consumer e. remains unchanged, provided the consumer buys no more of the good
We cannot predict the effect on the market clearing price, but know that the equilibrium quantity will increase when
A) supply increases and demand decreases. B) supply and demand for a product simultaneously decrease. C) supply and demand for a product simultaneously increase. D) supply decreases and demand increases.