Question

An agreement between Nike and Adidas to raise prices of the track shoes that each company produces by 50 percent is an example of a collusive agreement, and economists generally agree that

a	this agreement is not in the best interest of society because the price of track shoes is significantly above marginal cost.

b	this agreement is in the best interest of society because the quantity of track shoes bought and sold is significantly less than the quantity that would be bought and sold in a perfectly competitive market.

c	the price of track shoes does not affect societal welfare.

d	this agreement is in the best interest of society because the price of track shoes is significantly above marginal cost.

e	this agreement is not in the best interest of society because the price of track shoes is significantly below marginal cost.

In January, Walmart offered a 10 percent–off coupon and Target did not. In February, Target offered a 10 percent–off coupon and Walmart did not. In March, Walmart offered a 10 percent–off coupon and Target did not. It is likely that Walmart and Target are both playing the ________ strategy.

a	grim trigger

b	tit-for-tat

c	tit-for-two-tats

d	mutually assured destruction

e	retail retaliation

In the airline industry, it is common to see one airline changing the airfare (price) between two cities and other airlines either matching the price or actively deciding not to change their prices. What type of game can describe this situation?

a	tit for tat

b	nonsequential

c	bargaining

d	sequential

e	nonbargaining

Answer 1

Q1. Option a. As the price is above the marginal cost it would reduce the quantity consumed which affects the social welfare
Q2. Option d. As both are trying to hurt each other by offering alternative off coupon
Q3. Option d. here players who move later have additional information about the actions of other players and players who move first can often influence the game.