1.Consider a sequential game between a shopkeeper and a haggling customer. The p
ID: 2715609 • Letter: 1
Question
1.Consider a sequential game between a shopkeeper and a haggling customer. The party who moves first chooses either a high price ($50) or low price ($20) and the second mover either agrees to the price or walks away from the deal and neither party gets anything. Ignore costs and assume the customer values the item at $60.
If the shopkeeper goes first and quotes a low price, what is the best response of the customer?
Walk away from the deal
Accept the low price happily
Laugh at the storeowner
Slam the storeowner’s door on the way out
2.Jim is haggling with a car dealer on the price of a used car. If the dealer is getting a bonus per sale made, in addition to the commission, Jim is more likely to be able to
Walk away from the deal
Get the car cheap
All of the above
Pay a higher price for the car
3.Jim is haggling with a car dealer over the sale price of a used car. When he entered the store he was the only customer. This means that
Jim has a better chance of having his offer accepted, since the seller does not have any outside offers
Jim has lower chances of having his offer accepted, since the seller has more outside offers
The disagreement value for the seller has increased
Only A&C
4.Jill, a bookkeeper, just received an attractive offer from an outside firm and so she asks for a raise from her current employer. If the management of Jill’s company is aware of the offer, her raise request is more likely to be
Accepted
Rejected
Laughed at
All of the above
5.The best threat is one
You sometimes have to carry out
You must always carry out
You always have to carry out
You never have to carry out
a.Walk away from the deal
b.Accept the low price happily
c.Laugh at the storeowner
d.Slam the storeowner’s door on the way out
Explanation / Answer
1. b
2. b
3. d
4. a
5. a
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