Will and Grace Have Adjoining Unfenced Back Yards and Each

question 141

Multiple Choice

Will and Grace have adjoining unfenced back yards and each has just adopted a new puppy.Will values a fence between their yards at $250 and Grace values a fence between their yards at $200.The value of the effort required to build the fence is $300,which will be split equally if they both help build the fence.If one of the neighbors begins building the fence the other might or might not come over to help.Therefore,their payoff matrix is $\begin{array}{c}\quad\quad\quad\quad\quad\quad\text { Will }\\\text { Grace }\begin{array}{|c|c|c|}\hline& \text { Build } & \text { Not Build } \\\hline \text { Build } &\text { Grace: } \$ 50 ; \text { Will: } \$ 100 & \text { Grace: }-\$ 100 ; \text { Will: } \$ 250 \\\hline \text { Not Build } & \text { Grace: } \$ 200 ; \text { Will: }-\$ 50 & \text { Grace: 0; Will: } 0 \\\hline\end{array}\end{array}$
Will's dominant strategy in this game is to

• A) build the fence.
• B) help build the fence if he observes Grace starting to build it first.
• C) not build the fence.
• D) alternate between helping Grace and not helping her.

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Definitions:

Fixed Exchange Rate

A system where the value of a currency is pegged at a set value against another currency or a basket of currencies.

Floating Exchange Rate

A currency's value that is determined by the foreign exchange market depending on supply and demand relative to other currencies, rather than a fixed value set by a government.

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, aiming to determine the adjustments needed to make the exchange rates of two currencies equal.

Basket of Goods

Is a selected set of products and services whose prices are tracked to measure inflation or cost of living changes in an economy over time.