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Eco312 Ps1 Sol
Eco312 Ps1 Sol
Eco312 Ps1 Sol
Question A
If soybeans are one of the ingredients in cattle feed, how does a price support program in soybean
market (i.e., raising the price of soybeans) affect the equilibrium price and quantity of beef?
Answer Key:
By raising the price of soybeans, an input used in beef production, the price support program raises
the price of cattle feed, which causes a leftward shift in the supply schedule for beef. This, in turn,
results in an increase in the equilibrium price and a reduction in the equilibrium quantity of beef.
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XJTLU IBSS Year 2016/2017 Semester 2
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XJTLU IBSS Year 2016/2017 Semester 2
price of unskilled labor rises, the slope of the isocost line rises, causing many firms to increase their
employment of skilled labor. (isocost line will be introduced in lecture 3.)
Question E: Chicken
The classic toy game called Chicken derives from the James Dean movie Rebel without a Cause, in
which two teenage boys drive cars toward a cliff edge to see who chickens out first. The same game
is played by middle-aged drivers who approach each other in streets too narrow for them to pass
without someone slowing down. If both of them speed up, each gets a utility of -1. If both of them
slow down, each gets a utility of 2. If one speeds up and the other slows down, the former gets a
utility of 3 and the latter 0. Show the payoff matrix and find the Nash equilibria of this game.
Answer Key:
(slow, speed) and (speed, slow) are Nash equilibria.