Alec and Kim Used to Be Much Better Friends Than

question 13

Multiple Choice

Alec and Kim used to be much better friends than they are now.The problem is what to do about Christmas gifts? If they wait until Christmas morning and move simultaneously, their payoff matrix is If Alec commits at Thanksgiving time not to buy a gift for Kim, Kim will find it in her best interest

• A)to buy a gift for Alec to spite him.
• B)not to buy a gift for Alec.
• C)to buy a gift for Alec with probability 2/7.
• D)to buy a gift for Alec with probability 4/9.
• E)to buy a gift for Alec with probability 4/6.

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Definitions:

Loanable Funds

Refers to the market where savers supply funds for loans to borrowers.

Durable Consumer Goods

Products that are not consumed or destroyed in use and are able to provide utility over time, such as appliances, cars, or furniture.

Loanable Funds

The money available for lending and borrowing in the financial markets.

Opportunity Cost

The value of the next best alternative foregone as the result of making a decision.