7/27/2019 Poli 160AA Review Midterm 1

1/3

Poli 160AA Review Midterm 1

10.23.12

Test

Need blue book

6 questions

3 types

Definition questions

(arrows theorem, Id all conditions for arrows theorem, condorcets

paradox, voting etc)

Interpretation of a game

Prisoners dilemma, round-robin, voting, etc.

Analysis of context/problem

Arrows theorem

Everyones a rational thinker

Rational actors will maximize their utility, measure of happiness, wants.Want to maximize what we want.

Conditions of Arrows theorem

Condition U. universal domain. All group members have a complete set of

preferences also transitive preference

Condition I:. independence from irrelative alternatives:

Condition P. pareto optimality ( if one person gains no one else loses)

Condition D. non dictatorship

Condorcets paradox= cycles. Each individual may be rational and meet the

conditions for rationality, but in the group outcome a cycle may arise.

Majority rule as a method of aggregating paradox. Theres no way out

Voting

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Sincere

Strategic

Sophisticated voting takes place in two rounds. You vote strategically first

in the first

round, then in the second round you vote for your first choice.

Prisoners Dilemma,

Coke vs Pepsi.

Pepsi High Pepsi Low

Coke High 10,10 7,12

Coke Low 12,7 9,9

What is a rational strategy if game is 5 rounds long?

The players would want to cooperate first

Another strategy is tit-for-tat

Backwards induction: in sequential games you look ahead to the very

end and see what logic applies.

How to deal with Collective Action problems

Incentives

Creating norms

Coercion

Market Economy

Markets= a place where goods and services are exchanged

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Market = decentralized system for exchange goods and services with people

whi have these goods and services

Alternatives to the market

Survival of the fittest= who ever gets the good gets it.

Queing= whoever wants to wait in line the most gets it

Lottery= randomly

Central planner

Two features of the market that are ideal

Information= accurately gage what you want you need to know what you

are getting.

Incentives =people are self-interested in a way that helps everyone out.

4 preconditions to the existence of the market

Everyone has diverse preferences

Diverse endowments

Economies of scale. the more that a producer makes, the less it costs to

make this good, so the price of the good

Specialization

Benefits of the markets

Gains from productive efficiency

Gains from trade

Reduction in transaction costs

Key terms

Prices: values we set on goods and services based on how much we want

to buy of a certain good and how much blah blah

Law of demand

Controlling demand

Price floor and price ceilings