Deck 5: Bargaining

Question 1

Chrissie owns a vintage guitar that she values at $0.Mark would like to buy the guitar and values it at $1000.The negotiations are as follows.Chrissie suggests a price to Mark.If Mark agrees trade takes place at the agreed price.If Mark rejects the offer, Mark buys an identical guitar from Angus for a price of $400 and Chrissie receives a payoff of $0.What is the outcome of the negotiations?

A)Chrissie offers a price of $400 and Mark accepts.
B)Chrissie offers a price of $600 and Mark accepts.
C)Chrissie offers a price of $1000 and Mark accepts.
D)Chrissie offers a price of $0 and Mark accepts.
E)Chrissie offers a price of $500 and Mark rejects.

Answer 1

Chrissie offers a price of $400 and Mark accepts.

Question 2

William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects, bargaining proceeds to the next round in which Jackson gets to make a price offer to William.At this point, if William accepts, trade takes place at the price suggested by Jackson.If William rejects the offer, no trade takes place between them.William keeps the car and Jackson gets a payoff of $0.Given the equilibrium outcome of the negotiations, what are the realized gains from trade?

A)$5000
B)$4000
C)$3000
D)$2000
E)$1000

Answer 2

$2000

Question 3

Chrissie owns a vintage guitar that she values at $300.Mark would like to buy the guitar and values it at $1000.The negotiations are as follows.Chrissie suggests a price to Mark.If Mark agrees trade takes place at the agreed price.If Mark rejects the offer, negotiations end and each party receives a payoff of $0.What are the potential gains from trade?

A)$300
B)$400
C)$700
D)$1000
E)None of the above.

Answer 3

$700

Question 4

Chrissie owns a vintage guitar that she values at $0.Mark would like to buy the guitar and values it at $1000.The negotiations are as follows.Chrissie suggests a price to Mark.If Mark agrees trade takes place at the agreed price.If Mark rejects the offer, negotiations end and each party receives a payoff of $0.What is the outcome of the negotiations?

A)Trade takes place at a price of $0.
B)Trade takes place at a price of $500.
C)Chrissie offers a price close to $1000 and Mark rejects the offer.
D)Trade takes place at a price of $1000.
E)Mark rejects any offer Chrissie makes.

Question 5

William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects no trade takes place.William keeps the car and Jackson gets a payoff of $0.What will the outcome be of the negotiation process?

A)William suggests Jackson pay $4000 and Jackson rejects the deal.
B)William suggests Jackson pay $8000 and Jackson accepts the deal.
C)William suggests Jackson pay $3000 and Jackson accepts the deal.
D)William suggests Jackson pay $5000 and Jackson accepts the deal.
E)William suggests Jackson pay $3000 and Jackson rejects the deal.

Question 6

When considering a bargaining game, we determine the outcome of the game by:

A)Going to the end and working backwards.
B)Working forwards, considering each stage of the negotiation in turn.
C)Assume that a bargaining agent will only make and accept offers that are in their interest.
D)Assume that bargaining agents act irrationality.
E)a and C

Question 7

William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects, bargaining proceeds to the next round in which Jackson gets the make a price offer to William.At this point, if William accepts, trade takes place at the price suggested by Jackson.If William rejects the offer, no trade takes place between them.William keeps the car and Jackson gets a payoff of $0.What outcome will result from negotiation process?

A)William offers a price of $3000 and Jackson accepts.
B)William offers a price of $5000 and Jackson accepts.
C)William offers a price of $4000 and Jackson accepts.
D)William offers a price of $3000 and Jackson rejects; Jackson offers a price of $5000 in the second period of negotiations and William rejects.
E)William offers a price of $5000 and Jackson rejects; Jackson offers a price of $3000 in the second period of negotiations and William rejects.

Question 8

Chrissie owns a vintage guitar that she values at $0.Mark would like to buy the guitar and values it at $1000.The negotiations are as follows.Chrissie suggests a price to Mark.If Mark agrees trade takes place at the agreed price.If Mark rejects the offer, negotiations proceed to the next round in which Mark makes an offer to Chrissie.If Chrissie agrees with Mark's suggested price, trade takes place at that price.If Chrissie rejects this offer negotiations end and each party receives a payoff of $0.What is the outcome of the negotiations?

A)Chrissie offers a price of $400 and Mark accepts.
B)Chrissie offers a price of $600 and Mark accepts.
C)Chrissie offers a price of $1000 and Mark accepts.
D)Chrissie offers a price of $500 and Mark rejects.
E)Chrissie offers a price of $0 and Mark agrees.

Question 9

William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects no trade takes place.William keeps the car and Jackson gets a payoff of $0.Given the equilibrium outcome of the negotiations, what are the realized gains from trade?

A)$1000
B)$2000
C)$3000
D)$4000
E)$5000

Question 10

Ainslie is in a team with Michelle and together they must produce a report for their boss.To determine who will do the work, they engage in the following negotiations: Ainslie can propose that either she does the work, or that Michelle does the work.Michelle can then accept or reject Ainslie's offer.If Ainslie offers to do the work, and Michelle accepts this offer, Ainslie gets a payoff of 20 and Michelle a payoff of 40.If Michelle rejects this offer both get a payoff of 10.If Ainslie suggests Michelle do the work and Michelle accepts, the payoffs are 50 to Ainslie and 20 to Michelle.If Michelle rejects Ainslie's suggestion that Michelle is the one who should complete the work, Ainslie has an opportunity to respond.At this juncture, Ainslie can opt not to do the work, and both workers get a payoff of 10.If Ainslie chooses to do the work, she receives a payoff of 15 and Michelle gets a return of 50.What is the outcome of this negotiation process?

A)Ainslie suggests Michelle do the work, and Michelle refuses; Ainslie then chooses to do the work.
B)Ainslie suggests Michelle do the work, and Michelle accepts.
C)Ainslie suggests Michelle do the work, Michelle refuses; Ainslie then chooses not to do the work.
D)Ainslie suggests that she does the work herself, and Michelle refuses.
E)Ainslie suggests she does the work, and Michelle accepts.