Two Players Are Engaged in a Game of "Chicken

question 22

Multiple Choice

Two players are engaged in a game of "chicken." There are two possible strategies, Swerve and Drive Straight.A player who chooses to Swerve is called "chicken" and gets a payoff of zero, regardless of what the other player does.A player who chooses to Drive Straight gets a payoff of 48 if the other player Swerves and a payoff of -48 if the other player also chooses to Drive Straight.This game has two pure strategy equilibria and

• A)a mixed strategy equilibrium in which each player swerves with probability 0.50 and drives straight with probability 0.50.
• B)a mixed strategy in which each player swerves with probability 0.25 and drives straight with probability 0.75.
• C)a mixed strategy equilibrium in which one player swerves with probability 0.50 and the other swerves with probability 0.50.
• D)two mixed strategies in which players alternate between swerving and driving straight.
• E)no mixed strategies.

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Definitions:

Classical Economists

Early economists, such as Adam Smith and David Ricardo, who focused on the role of free markets in promoting economic growth and efficiency.

Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in successive quarters.

Interest Rates

The cost of borrowing money expressed as a percentage of the principal, or the rate earned by savings and investments.

Keynes

Refers to John Maynard Keynes, a British economist whose theories on government economic intervention laid the foundation for modern macroeconomics.