The Figure Shown Displays the Choices That Could Be Made

question 130

Multiple Choice

The figure shown displays the choices that could be made by two coffee shops: Starbucks and Dunkin' Donuts. Both companies are trying to decide whether or not to expand into a new area. The area can only handle one coffee shop's expansion, and the expansion of one shop will cause the other to lose some business. If both coffee shops expand, the market will become saturated and neither will do well. The payoffs for these shops are the additional profits (or losses) they will earn.Starbucks:

• A)has a dominant strategy to expand.
• B)has a dominant strategy not to expand.
• C)has the first-mover advantage.
• D)should wait to see what Dunkin' Donuts is going to do.

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Definitions:

100-percent-reserve Banking

A banking system in which banks keep the full amount of their depositors' funds in reserve, meaning they do not loan out any of the deposits but instead hold 100% of deposited money.

Money Supply

The total amount of currency and monetary assets within an economy at a specific time.

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves that banks must hold against deposits, used to control the money supply.

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are deemed at risk of failure.