Management and a Labor Union Are Bargaining Over How Much

question 46

Multiple Choice

Management and a labor union are bargaining over how much of a $100 surplus to give to the union.The $100 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $100.Which of the following is NOT a Nash equilibrium?

• A) Management requests $50 and the labor union accepts $50.
• B) Management requests $70 and the labor union accepts $20.
• C) Management requests $100 and the labor union accepts $0.
• D) Neither management requesting $100 and the labor union accepting $0 nor management requesting $70 and the labor union accepting $20 are Nash equilibria.

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Definitions:

Income Effect

The change in an individual's or economy's consumption patterns due to a change in real income, which can result from wage changes, inflation, or taxation adjustments.

Consumer Equilibrium

The point at which the quantity of a product demanded by consumers equals the quantity supplied, leading to a state where there is no incentive for prices to change.

Consumer Equilibrium

A state in which a consumer has allocated their income in a way that maximizes their total utility given the prices of goods and services.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper alternatives.