Suppose now that no payroll tax is imposed on this market. Suppose instead that the workers form a union (a cartel) so that they can collectively bargain for a higher wage of $14/hour. Their agreement to keep wages high, however, is not legally enforceable, and so each worker can cheat on the agreement and offer his wages at a lower rate than $14/hour.

If all union members keep the agreement to charge the higher wage of $14, then employers will demand only 30 hours of work/week/laborer.

If one union member, let's call him Bobby, cheats on the agreement and charges $13/hour whereas all the others keep the $14/hour rate, Bobby will be able to work 37 hours/week, whereas each of the remaining union members can only work for 28 hours/week.

If Bobby keeps the agreement to charge the higher wage of $14 and the rest cheat by charging $13/hour each, then Bobby will only be able to work for 28 hours/week, whereas each of the remaining union members will be able to work 37 hours/week.

If everyone cheats, however, then the hourly wage (and weekly working hours demanded) are driven back down to the equilibrium price (and equilibrium quantity) you found in part (1).

Use these facts to answer parts 4-11 below. Assume that each worker only cares about his stream of revenue (i.e., the combined monetary value of his working and leisurely hours). Also, assume that all labor hours supplied are identical in quality, and so employers simply prefer cheaper labor to more expensive labor.

For parts 4-9, assume a one-shot simultaneous play.

Bobby

Each of the Other 99 Union Members

Keep Agreement

Cheat

Keep Agreement

A , B

C , D

Cheat

E , F

G , H

1.Write below the values of A , B: (3 points)

A = _________

B = _________

2.Write below the values of C , D: (3 points)

C = _________

D = _________

3.Write below the values of E , F: (3 points)

E = _________

F = _________

4.Write below the values of G , H: (3 points)

G = _________

H = _________

5.Write below the Nash Equilibrium(ria) of the game: (2 point)

Nash Equilibrium = ___________________

6.Is the NE you identified in part 8 above: (2 point)

a.Pareto efficient.

b.Pareto inefficient.

c.Neither.