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Revision Chapter 4-6 - Coggle Diagram
Revision Chapter 4-6
True/false
Two people making substantive judgements of fairness about the same situation must NOT necessarily agree
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One way to address the problem associated with the separation of ownership and control is to pay the managers a salary that depends on the performance of the firm's share price
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In labour contracts, one side of the contract has the power to issue orders to the other side. This type of power is absent from a sales contract
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If all individuals receive an equal income, then this allocation can be made fairer
The prisoners' dilemma is a situation where each player chooses a dominant strategy, but each could do better if both chose different strategies
When the ownership and control of a firm is separated, the managers DO NOT become the residual claimants
Graphs
4
At a point to the right of Angela's optimal choice, she is less willing to trade grain for free time than at her optimal choice
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3
Both traders will accuse each other, even though they will end up being in jail for 8 years
6
If the expected unemployment duration increased to 50 weeks, Maria's best response to a wage of $12 would be an effort level above 0.5
2
The dominant strategy equilibrium of this game is NOT (red dress, Red dress)
7
Angela's marginal rate of substitution is equal to the marginal rate of transformation at all point on the Pareto efficiency curve CD
1
There are 2 nash equilibria: (Cassava, Rice) and (Rice, Cassava)
Other
In a simultaneous one-shot game:
A player chooses an action taking into account the possible actions that other players can take
The employment situation that employment rent would be high, ceteris partibus:
In a job that provides many benefits, such as housing and medical insurance
Reasons why labour contracts are incomplete:
- The firm cannot contract an employee not to leave
- The firm cannot specify every eventuality in a contract
- The firm is unable to observe exactly how an employee is fulfilling the contract
The outcome of an economic interaction:
If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off
Textbook questions
If unemployment benefits are increased, the minimum cost of a unit of effort for the employer will rise
If the wage doesnt change, employees will work harder in periods of high unemployment
Graph 8
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If Angela has very flat indifference curves, she may prefer G to the other 3 allocations