This problem is a simplified version of section IV in Ko szegi and Rabin (2006). Consider the follo- wing example. We consider an individual named Ben. There are two goods that Ben likes, money and shoes. The consumption utilities are m1(x) = sx for shoes, and m2(y) = x for money. Ben has reference-dependent preferences with reference-dependent utility that is piece-wise linear, with slope in gains, and in losses, where > 0, > 1.
(a) It's a Saturday morning, and Ben wakes up with his mind set on buying shoes, as many people do on Saturdays. What is the highest price pmax Ben is willing to pay for a pair of shoes ? I.e., what is the highest price at which buying is a personal equilibrium ?
(b) What is the interpretation that pmax > s ?
(c) Now suppose that before shopping, Ben reads in the Straits Times that the store selling the shoes plays the following lottery : If you decide to buy the shoes, they will flip a coin. If it comes up heads, you get the shoes for free. If it comes up heads, they cost pmax. Is Ben still willing to buy the shoes at pmax ? What is the highest price Ben is willing to pay in this case ?
(d) Now suppose that it's a Wednesday, and Ben wakes up not expecting to buy shoes. Again, he reads the newspaper and it has the same ad in it. What is the highest price at which not buying is not a personal equilibrium ?
(e) Why is the price in (d) lower than pmax ?
A study of the career plans ofyou ng women and men sent questionnaires to all 7'22 members of the senior class of a particular college. ICline question asked which majorwithin the business program the student had chosen. Here are the data from the students who responded: _ _Im -- II II II [a] Describe the differences between the distributions of majors for women and men with percents. (Round your answers to two decimal places] Administration Finance Describe the differences between the distributions of majors for women and men in words. The biggest difference between women and men is in ---Select-- accounting administration economics nance . The field of ---Sele~::t-- accounting administration economics nance was the field most often selected by men. [b] What percent ofthe. students did not res pond to the questionnaire? The non respo rise weakens conclusio ns drawn from these data. {Round your answer to one decimal place} as 2. A survey of a sample of business students resulted in the following information regarding the genders of the individuals and their selected major. (25 pts) Selected Major Gender Economics Finance Others Total Male 60 140 40 240 Female 40 60 60 160 Total 100 200 100 400 a. What is the probability of selecting an individual who is majoring in Economics? b. What is the probability of selecting an individual who is majoring in Finance, given that the person is male? C. What is the probability that an individual is a female and majoring in Others? d. What is the probability that an individual is either a female or majoring in Finance? e. What is the probability of selecting an individual who is either majoring in Finance or in Economics?Homework Chapter 1 Name MATCHING What a society can produce. More production to satisfy wants and Match the key terms with the descriptions. needs. The process of thinking things Things people buy. through before making a decision. What can be fulfilled by acquiring KEY TERMS goods and services. 1. Capital (capital goods) People working. 2. Command dictatorship economy Tools and equipment used for production. 3. Cost-benefit analysis Funds to acquire capital goods. 4. Economic growth Risk taking. 5. Efficiency Goal of a business. 6. Entrepreneurship The transformation process. 7. Financial capital Maximum output at lowest cost. 8. Goods and services Application of knowledge. 9. Labor Limited resources unlimited wants and 10. Marginal benefit (MB) needs. 11. Marginal cost (MC) Evaluation of whether or not to take 12. Market capitalist economy the next step. 13. Opportunity cost Cost of taking the next step. 14. Private property Benefit of taking the next step. 15. Production Alternative foregone when you make 16. Production possibilities a decision. 17. Making profit Consumer decides what gets produced. 18. Rational action blucarsfrail a Decisions are made by the ruling elite. 19. Scarcity on to sabusedshow of prlingual Individual ownership of farms, facto- 20. Technology ries and homes. 21. The "Invisible Hand" Description of how self-interested 22. Wants and needs. activity benefits society by Adam Smith. her word or golog mom alyRussia witnessed a shift in its balance of trade to more of a deficit position. What can we attribute this to? (select the most complete answer below). Interest rates in Russia increased. The Russian Ruble appreciated in value leading to higher levels of Russian exports abroad leading to this shift in their balance of trade to more of a deficit position. O2 Interest rates in Russia.decreased. The Russian Ruble appreciated in value leading to higher levels of Russian exports abroad leading to a shift in their balance of trade to more of a deficit position. Interest rates in Russia decreased. The Russian Ruble depreciated in value leading to higher levels of Russian imports from abroad leading to a shift in their balance of trade to more of a deficit position. Interest rates in Russia increased. The Russian Ruble appreciated in value leading to higher levels of Russian imports from abroad leading 4. to a shift in their balance of trade to more of a deficit position
