Question

TRUE OR FALSE WITH EXPLANATION!!!

1. A Nash equilibrium is necessarily a dominant strategy equilibrium.

2. A competitive equilibrium is not necessarily Pareto efficient.

3. In a world with two goods and constant product prices, an increase in a country’s endowment of one factor of production with the other factor unchanged results in an increase in the output of the good that uses the increasing factor intensively.

4. A Pareto efficient allocation is attainable in the presence of externalities.

Answer 1

1. A Nash equilibrium is necessarily a dominant strategy equilibrium. ( False statement, Under the dominant strategy, there is single course of action while there might be multiple Nash equilibrium)

2. A competitive equilibrium is not necessarily Pareto efficient. (True Statement: In presence of externality, Competitive market will not be pareto effcient)

3. In a world with two goods and constant product prices, an increase in a country’s endowment of one factor of production with the other factor unchanged results in an increase in the output of the good that uses the increasing factor intensively. ( True statement: Increase factor endowment increases its use and output will rise where such factor is used)

4. A Pareto efficient allocation is attainable in the presence of externalities. ( False statement: Pareto efficient allocation can not be attained in presence of externalities.