In the Book \" ECON 121\" Santa Ana College Volume 2. Answer the question: 1,2,5
ID: 1216242 • Letter: I
Question
In the Book " ECON 121" Santa Ana College Volume 2. Answer the question: 1,2,5,6,7,8,9,10
1> What is a coordination mechanism? Give an example.
a. It is a method of coordinating people's wants with other people's desires. All markets are a type of coordination mechanism.
b. It is a method of helping people overcome their predictable irrationalities by mapping their preferences with all possible outcomes. Most coordination mechanisms are a matter of information.
c. It is a method of deciding how to best coordinate worker abilities within a firm. Because a firm works by command and control, not markets, it must have a coordination mechanism.
d. It is a method of coordinating people’s wants with other people's desires. Only markets with money and prices have a coordination mechanism. Markets without money and prices cannot match wants and desires.
2>What is the incentive compatibility problem? Give an example.
a. A problem that arises when the incentive facing a decision maker (marginal benefit) does not equal the effort (marginal cost). An example is when government places a greater cap on CO2 than is efficient (the costs of reducing emissions exceed the benefits).
b. A problem in which the incentive facing the decision maker does not match the incentive needed for the mechanism to achieve its desired end. An example is the salary of managers. While it is in the interest of the corporation to keep costs down (keep salaries as low as possible), it is in the interest of the manager to boost his own salary.
c. A problem that arises when government intervention does not improve the well being of society. An example is when a government employee hires friends to do contract work instead of bidding contracts out and choosing the lowest bid.
d. A problem in which the incentive to engage in an activity is realized now while the costs are realized later. This separation of incentives and costs creates a problem because people tend to discount future costs and benefits. An example is someone who chooses not to exercise but later regrets the weight gain.
3> Can a model that includes just money price miss relevant prices? Why or why not?
a. Yes. Such a model might ignore the possibility that government could implement programs such as price ceilings, quantity restrictions, and taxation as ways to achieve its goals. An example is the quota that the United States imposes on imported sugar, as mentioned in the text.
b. No. Models that include money prices will include all the relevant incentive effects that people face. All modern market economies have money prices.
c. No. Markets rely on money and prices as the coordinating mechanism. Other factors should not affect decisions; it is the job of economists to help people realize that costs and benefits are stated in terms of prices.
d. Yes. Such a model might fail to take into account social and moral incentives faced by decision makers. An example is the late pick-up at day care centers cited in the text. By replacing the moral incentive to pick up one’s child on time with a market price, late pick-ups unexpectedly rose.
4>How is choice architecture related to behavioral economics and mechanism design?
a. Choice architecture describes the structure of people’s decision-making process. Behavioral economics has developed experiments to reveal these structures, and mechanism design is an attempt by economists to change that structure.
b. Choice architecture is the context in which decisions are made. Behavioral economists have discovered that choice architecture affects people’s choices. Mechanism design economists take this into account when designing mechanisms to achieve particular goals.
c. Choice architecture considers the choices that people face and whether people make choices within the marginal benefit and marginal cost framework. Behavioral economists have developed studies to test this question, and mechanism design is a deliberate structuring of those costs and benefits to help people make the best choices.
d. Choice architecture describes the pricing structure embodied in modern markets. It is related to behavioral economics because people respond differently to different pricing structures. Once economists understand how people respond to different pricing structures, they can use mechanism design to design structures that will maximize profits for the firm.
5> Behavioral economics is a new field in economics. Are nudges new too?
a. Nudges are a recommended policy of Thaler and Sunnstein; they have yet to be fully explored and implemented by the government.
b. Nudges are not new. Governments have been requiring firms to present information in ways that result in people making the best choices ever since markets have existed.
c. Nudges are not new. Firms have been presenting choices to people in intentional ways to affect their choices for many years.
d. Nudges are so new that not even all economists believe they are effective. While some firms have begun to implement nudges, most are uncomfortable doing so because of the bad association consumers have with nudges.
6> What is a nudge policy? Give an example.
a. A policy in which choices are structured in a way that people are free to make the choice they want, but are more likely to choose in the way that meets predetermined goals of policy makers. Presenting participation in a retirement plan as the norm is an example.
b. A policy in which government requires firms to structure choices people face so that they are free to make the choice they want, but are more likely to choose in the way that meets predetermined goals of policy makers. Rent control is an example.
c. A policy in which government uses taxes, subsidies, price controls, and quantity restrictions to nudge people to reach a public policy goal. A gasoline tax is an example.
d. A policy in which government subsidizes activities as a way of nudging people to take on an activity, but not requiring it. Subsidizing education is an example.
7>How can a nudge be defined as libertarian?
a. Nudges are not libertarian, no matter how you look at them.
b. People remain free to make whichever choice they prefer. The incentives remain the same, but the context of the question is changed.
c. Government is ensuring that people make full use of their civil liberties by encouraging them to make choices that are good for them. Government is not forcing people to make any particular choice.
d. Nudges are examples of government intervention, which has historically been a liberal agenda.
8> In what way is nudge policy paternalistic?
a. Most policy makers are men, making nudge policy paternalistic.
b. People are given rights to make their own decisions, which are the decisions that are most likely best for them.
c. Choices are framed in ways that people choose what is “best” for them as decided by policy makers.
d. People are granted the right to make decisions by policy makers. These rights make nudges paternalistic.
9>What distinguishes a nudge from a push?
a. In push policies, the government provides many options for firms and individuals to comply with a particular policy; in nudge policies, government restricts free choice by someone or some institutions in society.
b. In push policies, the government makes the decisions; in nudge policies, government requires firms to present choices in a particular way.
c. In push policies, the government manipulates money prices; in nudge policies, government manipulates shadow prices.
d. In push policies, the government requires firms to take a particular action; in nudge policies, government leaves everyone free to choose.
10> How is conspicuous consumption an example of the importance of relative materialism to one’s happiness?
a. Conspicuous consumption is consuming a product in public. Because of the social stigma of overt consumption, conspicuous consumption is viewed as asserting one’s relative materialism.
b. Conspicuous consumption is buying a good for the purpose of showing it off. Although one might get pleasure from the good itself, much of the pleasure comes from showing others that you have relatively more.
c. Conspicuous consumption is using one’s abilities to acquire relatively more material goods. One feels relatively more important by sharing one’s materialism conspicuously.
d. Conspicuous consumption is the overconsumption of some product as a means of self-punishment. One is trying to atone for the fact that he has relatively more material things than others.
Explanation / Answer
1. a. It is a method of coordinating people's wants with other people's desires. All markets are a type of coordination mechanism.
2. b. A problem in which the incentive facing the decision maker does not match the incentive needed for the mechanism to achieve its desired end. An example is the salary of managers. While it is in the interest of the corporation to keep costs down (keep salaries as low as possible), it is in the interest of the manager to boost his own salary.
3. d. Yes. Such a model might fail to take into account social and moral incentives faced by decision makers. An example is the late pick-up at day care centers cited in the text. By replacing the moral incentive to pick up one’s child on time with a market price, late pick-ups unexpectedly rose.
4. b. Choice architecture is the context in which decisions are made. Behavioral economists have discovered that choice architecture affects people’s choices. Mechanism design economists take this into account when designing mechanisms to achieve particular goals.
7. b. People remain free to make whichever choice they prefer. The incentives remain the same, but the context of the question is changed.
8. c. Choices are framed in ways that people choose what is “best” for them as decided by policy makers.
9. d. In push policies, the government requires firms to take a particular action; in nudge policies, government leaves everyone free to choose.
10. b. Conspicuous consumption is buying a good for the purpose of showing it off. Although one might get pleasure from the good itself, much of the pleasure comes from showing others that you have relatively more.