Question 1 (20 marks)

(a) Mr. Chan has two sons Albert and Bobby. Both Albert and Bobby can spend their time on the weekend either helping their mother to do the housework or playing computer games. Both the two sons enjoy playing computer games but dislike doing housework. If one selects to do the housework, he will incur a disutility equivalent to a cost of $30. If one selects to play computer game, he will enjoy a benefit of $80. Mr. Chan also gives his sons pocket money each week. If both sons do the housework, each son will receive $120 pocket money. If both sons play computer game, each son will receive $40 pocket money. If one son does the housework and the other son plays computer game, the son who does the housework will receive $X pocket money and the son who plays computer game will receive $Y pocket money. Find a pair of possible values of X and Y so that (do housework, do housework) is the only Nash Equilibrium. Show your resulting payoff matrix and show your proof that the Nash Equilibrium of such a game satisfies the requirement. (7 marks)

(b) What is the free-riding problem? Explain why a group presentation in a university course like ours can be subject to free-riding problem. (5 marks)

(c) Explain why measures by individuals for prevention of COVID-19, such as wearing surgical masks in public places and avoiding close contact with others, involves positive externalities. Some people claimed that individuals can judge themselves what they should do to prevent the disease in an optimal way and therefore, government rules, such as forced closures of certain venues such as bars or forced distancing between tables in restaurants, are not necessary. Do you agree? Explain your answers (8 marks)